Compendium of Energy Laws

DEPARTMENT OF ENERGY
COMPENDIUM OF ENERGY LAWS

AND OTHER ISSUANCES
VOLUME 4
ELECTRIC POWER INDUSTRY

FOREWORD
by the Secretary
Greetings!
The Department is pleased to present this Compendium of Energy Laws and Other
Issuances. Included in this publication are those covering the creation of the
Department and its attached agencies, as well as the laws and IRRs in the upstream,
and power industries.
We commend our Legal Services for its efforts to come up with a digest, giving us
access to much needed information for energy-related endeavors. We also thank
the Gender and Development (GAD) Committee for their support of this project.
This compendium will serve as a reminder of how our agency evolved through the
years and serve as basis of what the agency can further achieve. This publication
also shows us the changes and additions we can make to present laws and
regulations to improve our policies and subsequently, the lives of our people.
As members and affiliates of this agency, we should be proud of our accomplishments

and strive to always maintain our reputation as one of the most professional
agencies in the government. We should remember the things we have already
done so we can be guided to address our country’s energy requirements. Our task
today is to come up with new, if not better guidelines for generations ahead.
Let us make this publication a useful guide in fulfilling our duties as public servants
and productive members of the Energy Department and its attached agencies.
JOSE RENE D. ALMENDRAS

PREFACE
by the UnderSecretary
An important commitment of the Department of Energy involves the mainstreaming

of Gender and Development (GAD) in its policies, plans, and programs to ensure
increased participation of women not only in the energy sector’s activities but in
the decision-making as well.
A valuable tool in achieving this goal comes in the form of a comprehensive

compilation designed to provide energy laws and regulations which date as far
back as 1971, that help shape today’s vibrant energy industry. This is a venue to
look into the energy laws and circulars and come to a determination if women are
indeed empowered and given such opportunities.
We, therefore, laud the significant efforts of the DOE Legal Service for embarking
on the publication of four volumes of the Compendium of Energy Laws and Circulars
as a project of the DOE GAD Focal Point. This Compendium serves as a useful
reference for energy stakeholders and professionals, researchers, students, and for
all those who share our vision of expanding energy services for women in order that
they may equally participate in the country’s economic development and also enjoy
the benefits of energy towards better quality of life.
Mabuhay!
LORETA G. AYSON, CESO I

TABLE OF CONTENTS
PROJECT PROFILE/HISTORY
i. FOREWORD BY THE SECRETARY

ii. PREFACE BY THE UNDERSECRETARY LORETA G. AYSON
VOLUME IV. POWER
CHAPTER I. ELECTRIC POWER INDUSTRY REFORMS
A. REPUBLIC ACT NO. 9136 1
AN ACT ORDAINING REFORMS IN THE ELECTRIC POWER INDUSTRY, AMENDING

FOR THE PURPOSE CERTAIN LAWS AND FOR OTHER PURPOSES
o RULES AND REGULATIONS TO IMPLEMENT REPUBLIC ACT NO. 9136,

ENTITLED “ELECTRIC POWER INDUSTRY REFORM ACT OF 2001” 36
o RULES AND REGULATIONS IMPLEMENTING SECTION 28 OF

REPUBLIC ACT NO. 9136 115
 AMENDMENTS TO SECTION 4(E) OF RULE 3 AND SECTION 7

OF RULE 18 OF THE IMPLEMENTING RULES AND REGULATIONS
(IRR) OF REPUBLIC ACT NO. 9136 117
 DEPARTMENT CIRCULAR NO. 2004-01-001 119

B. PRESIDENTIAL DECREE NO. 40 133
ESTABLISHING BASIC POLICIES FOR THE ELECTRIC POWER INDUSTRY
 EXECUTIVE ORDER NO. 215 134

o ENERGY REGULATIONS NO. 1-95 136
o DEPARTMENT CIRCULAR NO. 97-01-001 163
C. WHOLESALE ELECTRICITY SPOT MARKET 171

 AMENDMENTS TO WESM RULES
D. DEPARTMENT CIRCULAR NO. 2004-06-006 377
E. DEPARTMENT CIRCULAR NO. 2005-06-005 381
CHAPTER II. RURAL POWER PROJECTS
A. ENERGY REGULATIONS NO. 1-94 383
RULES AND REGULATIONS IMPLEMENTING SECTION 5 (i) OF REPUBLIC ACT NO.

7638, OTHERWISE KNOWN AS THE “DEPARTMENT OF ENERGY ACT OF 1992”
 ENERGY REGULATIONS NO. 1-94-A 396

 DEPARTMENT CIRCULAR NO. 2000-03-003 398
 DILG AND DOE JOINT CIRCULAR NO. 95-01 407
 COA DECISION NO. 2002—240 418
B. EXECUTIVE ORDER NO. 119 424
RESTRUCTURING PROGRAM FOR ELECTRIC COOPERATIVES
C. DEPARTMENT CIRCULAR NO. 2004-06-007 428
D. ERC RESOLUTION NO. 22, Series of 2006 432

 IRR OF ERC RESOLUTION NO. 22 433
CHAPTER III. ENERGY EFFICIENCY AND CONSERVATION
AN ACT PRESCRIBING URGENT RELATED MEASURES NECESSARY AND PROPER

TO EFFECTIVELY ADDRESS THE ELECTRIC POWER CRISIS AND FOR OTHER
PURPOSES
B. ADMINISTRATIVE ORDER NO. 103 445
C. ADMINISTRATIVE ORDER NO. 110 448
AMENDING ADMINISTRATIVE ORDER NO. 110 S. 2004 DIRECTING THE

INSTITUTIONALIZATION OF A GOVERNMENT ENERGY MANAGEMENT PROGRAM
(GEMP)
 ADMINISTRATIVE ORDER NO. 110-A 450
 IRR Directing the Institutionalization of a Government Energy
Management Program (GEMP)
D. MEMORANDUM ORDER NO. 185 460
E. ADMINISTRATIVE ORDER NO. 183 461
F. DEPARTMENT CIRCULAR NO. 2003-12-011 463

G. DEPARTMENT CIRCULAR NO. 2004-05-005 479
CHAPTER IV. NATIONAL POWER CORPORATION
A. COMMONWEALTH ACT NO. 120 485
AN ACT CREATING THE “NATIONAL POWER CORPORATION,” PRESCRIBING ITS

POWERS AND ACTIVITIES, APPROPRIATING THE NECESSARY FUNDS THEREFOR,
AND RESERVING THE UNAPPROPRIATED PUBLIC WATERS FOR ITS USE
B. REPUBLIC ACT NO. 6395 489
AN ACT REVISING THE CHARTER OF THE NATIONAL POWER CORPORATION
 PRESIDENTIAL DECREE NO. 380 500

C. ADMINISTRATIVE ORDER NO. 381 519
PROVIDING FOR THE FULFILLMENT BY THE NATIONAL POWER CORPORATION

OF ITS OBLIGATIONS UNDER THE AGREEMENT FOR THE SALE AND PURCHASE
OF NATURAL GAS DATED DECEMBER 30, 1997 WITH SHELL PHILIPPINES
EXPLORATION B.V./OCCIDENTAL PHILIPPINES, INC. AND THE COMPLIANCE
OF THE NATIONAL GOVERNMENT, THROUGH THE DEPARTMENT OF FINANCE
AND THE DEPARTMENT OF ENERGY WITH ITS PERFORMANCE UNDERTAKING
THEREFOR AND OTHER PURPOSES
D. EXECUTIVE ORDER NO. 473 523
PROVIDING FOR THE SEGREGATION AND UNBUNDLING OF ELECTRICAL POWER

TARIFF COMPONENTS OF THE NATIONAL POWER CORPORATION AND THE
FRANCHISED ELECTRIC UTILITIES
E. EXECUTIVE ORDER NO. 370 524
AUTHORIZING AND APPROVING THE DIRECT ASSUMPTION BY THE NATIONAL

GOVERNMENT OF A PORTION OF THE FINANCIAL OBLIGATIONS OF THE
NATIONAL POWER CORPORATION IN ACCORDANCE WITH SECTION 32 OF
REPUBLIC ACT NO. 9136, OTHERWISE KNOWN AS THE “ELECTRIC POWER
INDUSTRY REFORM ACT OF 2001”
CHAPTER V. NATIONAL ELECTRIFICATION ADMINISTRATION
AN ACT TO CREATE THE ELECTRIFICATION ADMINISTRATION, AND OTHER

PURPOSES
AN ACT DECLARING A NATIONAL POLICY OBJECTIVE FOR THE TOTAL ELECTRIFICATION

OF THE PHILIPPINES ON AN AREA COVERAGE SERVICE BASIS, PROVIDING FOR
THE ORGANIZATION OF THE NATIONAL ELECTRIFICATION ADMINISTRATION, THE
ORGANIZATION, PROMOTION AND DEVELOPMENT OF ELECTRIC COOPERATIVES
TO ATTAIN THE OBJECTIVE, PRESCRIBING TERMS AND CONDITIONS FOR THEIR
OPERATION, THE REPEAL OF R.A. NO. 2717, AND FOR OTHER PURPOSES
C. PRESIDENTIAL DECREE NO. 269 552
CREATING THE “NATIONAL ELECTRIFICATION ADMINISTRATION” AS A

CORPORATION, PRESCRIBING ITS POWERS AND ACTIVITIES, APPROPRIATING
THE NECESSARY FUNDS THEREFOR AND DECLARING A NATIONAL POLICY
OBJECTIVE FOR THE TOTAL ELECTRIFICATION OF THE PHILIPPINES ON AN
AREA COVERAGE SERVICE BASIS, THE ORGANIZATION, PROMOTION AND
DEVELOPMENT OF ELECTRIC COOPERATIVES TO ATTAIN THE SAID OBJECTIVE,
PRESCRIBING TERMS AND CONDITIONS FOR THEIR OPERATIONS, THE REPEAL
OF REPUBLIC ACT NO. 6038, AND FOR OTHER PURPOSES

CHAPTER VI. OTHER RELATED LAWS AND ISSUANCES IN ELECTRIC POWER INDUSTRY
AN ACT TO CREATE THE PHILIPPINE NUCLEAR ENERGY COMMISSION TO

ADMINISTER, REGULATE, AND CONTROL THE USE, APPLICATION, AND
DISPOSITION OF FISSIONABLE MATERIALS; TO AUTHORIZE THE ESTABLISHMENT
AND ADMINISTRATION OF AN ATOMIC ENERGY REACTOR; TO DETERMINE
THE MANNER OF DEVELOPMENT, USE AND CONTROL OF ATOMIC ENERGY, TO
PROVIDE FUNDS THEREFOR, AND FOR OTHER PURPOSES
AN ACT PENALIZING THE PILFERAGE OF ELECTRICITY AND THEFT OF ELECTRIC

POWER TRANSMISSION LINES/MATERIALS, RATIONALIZING SYSTEM LOSSES BY
PHASING OUT PILFERAGE LOSSES AS A COMPONENT THEREOF AND FOR OTHER
PURPOSES
 IRR OF REPUBLIC ACT NO. 7832 599
C. ERB RESOLUTION NO. 95-21 610
STANDARD RULES AND REGULATIONS GOVERNING THE OPERATION OF ELECTRIC

POWER SERVICES
D. REPUBLIC ACT NO. 9511 622
AN ACT GRANTING THE NATIONAL GRID CORPORATION OF THE

PHILIPPINES A FRANCHISE TO ENGAGE IN THE BUSINESS OF CONVEYING OR
TRANSMITTING ELECTRICITY THROUGH HIGH VOLTAGE BACK-BONE SYSTEM
OF INTERCONNECTED TRANSMISSION LINES, SUBSTATIONS AND RELATED
FACILITIES, AND FOR OTHER PURPOSES
E. REPUBLIC ACT NO. 10150 627
AN ACT EXTENDING THE IMPLEMENTATION OF THE LIFELINE RATE, AMENDING FOR

THE PURPOSE SECTION 73 OF REPUBLIC ACT NUMBERED NINETY-ONE THIRTY-SIX,
OTHERWISE KNOWN AS THE “ELECTRIC POWER INDUSTRY REFORM ACT OF 2001”
CHAPTER VII.
ELECTRIC POWER INDUSTRY CASES 629
 Decision – G.R. No. 127373. March 25, 1999

Energy Regulatory Board and Iligan Light & Power, Inc.,
vs. Court of Appeals and Association of Mindanao Industries 629
 Decision – G.R. No. 135925. December 22, 2004,

BATELEC II Electric Cooperative Inc.,
vs. Energy Industry Administration Bureau,
Puyat Steel Corp. and National Power Corp. 636
 Decision – G.R. No. 159796. July 17, 2007

Romeo P. Gerochi et al. vs. DOE et al. 644
 Decision – G.R. No. 176935-36. March 13, 2009

Zambales II Electric Cooperative, Inc.
Board of Directors vs.
Castillejos Consumers Association, Inc. (CASCONA) 654
 Decision – G.R. No. 180345. November 25, 2009,

San Roque Power Corp. vs.
Commissioner of Internal Revenue 664
 Decision – G.R. No. 172960. March 26, 2010,

Mactan Electric Company, Inc. vs. NAPOCOR et al. 676
APPENDICES 685
Chapter 1
Electric Power Industry Reforms
REPUBLIC ACT NO. 9136

AN ACT ORDAINING REFORMS IN THE ELECTRIC POWER INDUSTRY, AMENDING FOR THE PURPOSE
CERTAIN LAWS AND FOR OTHER PURPOSES
CHAPTER I entities in the process of restructuring

TITLE AND DECLARATION OF POLICY the electric power industry;

SECTION 1. Short Title. – This Act shall be (f) To protect the public interest as it is
known as the “Electric Power Industry Reform affected by the rates and services of
Act of 2001”. It shall hereinafter be referred electric utilities and other providers of
to as the “Act”. electric power;

SECTION 2. Declaration of Policy. – It is (g) To assure socially and environmentally
hereby declared the policy of the State: compatible energy sources and
infrastructure;
(a) To ensure and accelerate the total
electrification of the country; (h) To promote the utilization of indigenous
and new and renewable energy resources
(b) To ensure the quality, reliability, security in power generation in order to reduce
and affordability of the supply of electric dependence on imported energy;
power;
(i) To provide for an orderly and transparent
(c) To ensure transparent and reasonable privatization of the assets and liabilities
prices of electricity in a regime of free of the National Power Corporation (NPC);
and fair competition and full public
accountability to achieve greater (j) To establish a strong and purely
operational and economic efficiency independent regulatory body and system
and enhance the competitiveness of to ensure consumer protection and
Philippine products in the global market; enhance the competitive operation of
the electricity market; and
(d) To enhance the inflow of private capital
and broaden the ownership base of the (k) To encourage the efficient use of energy
power generation, transmission and and other modalities of demand side
distribution sectors; management.

(e) To ensure fair and non-discriminatory
treatment of public and private sector
VOLUME 4 ELECTRIC POWER INDUSTRY 1

SEC. 3. Scope. – This Act shall provide a a Chairman and four (4) members as
framework for the restructuring of the electric provided under Section 38 hereof;
power industry, including the privatization of
the assets of NPC, the transition to the desired (g) “Concession Contract” refers to the award
competitive structure, and the definition of by the government to a qualified private
the responsibilities of the various government entity of the responsibility for financing,
agencies and private entities. operating, expanding, maintaining and
managing specific Government-owned
SEC. 4. Definition of Terms. – assets;

(a) “Aggregator” refers to a person or entity, (h) “Contestable Market” refers to the
engaged in consolidating electric power electricity end-users who have a choice
demand of end-users in the contestable of a supplier of electricity, as may be
market, for the purpose of purchasing determined by the ERC in accordance
and reselling electricity on a group basis; with this Act;

(b) “Ancillary Services” refer to those (i) “Customer Service Charge” refers to the
services that are necessary to support the component in the retail rate intended
transmission of capacity and energy from for the cost recovery of customer-related
resources to loads while maintaining services including, but not limited to,
reliable operation of the transmission meter reading, billing administration and
system in accordance with good utility collection;
practice and the Grid Code to be adopted
in accordance with this Act; (j) “Demand Side Management” refers to
measures undertaken by distribution
(c) “Captive Market” refers to electricity utilities to encourage end-users in the
end-users who do not have the choice proper management of their load to
of a supplier of electricity, as may be achieve efficiency in the utilization of
determined by the Energy Regulatory fixed infrastructures in the system;
Commission (ERC) in accordance with
this Act; (k) “Department of Energy” or “DOE” refers
to the government agency created
(d) “Central Dispatch” refers to the process pursuant to Republic Act No. 7638 whose
of issuing direct instructions to electric expanded functions are provided herein;
power industry participants by the
grid operator to achieve the economic (l) “Department of Finance” or “DOF”
operation and maintenance of quality, refers to the government agency created
stability, reliability and security of the pursuant to Executive Order No. 127;
transmission system;
(m) “Distribution Code” refers to a compilation
(e) “Co-Generation Facility” refers to a of rules and regulations governing electric
facility which produces electrical an/or utilities in the operation and maintenance
mechanical energy and forms of useful of their distribution systems which
thermal energy such as heat or steam includes, among others, the standards
which are used for industrial commercial for service and performance, and defines
heating or cooling purposes through the and establishes the relationship of the
sequential use of energy; distribution systems with the facilities
or installations of the parties connected
(f) “Commission” refers to the decision- thereto;
making body of the ERC composed of
2 ELECTRIC POWER INDUSTRY VOLUME 4
(n) “Distribution of Electricity” refers to (w) “Franchise Area” refers to a geographical
the conveyance of electric power by a area exclusively assigned or granted to
distribution utility through its distribution a distribution utility for distribution of
system pursuant to the provisions of this electricity;
Act;
(x) “Generation Company” refers to any
(o) “Distribution System” refers to the person or entity authorized by the ERC to
system of wires and associated operate facilities used in the generation
facilities belonging to a franchised of electricity;
distribution utility extending between
the delivery points on the transmission (y) “Generation of Electricity” refers to the
or subtransmission system or generator production of electricity by a generation
connection and the point of connection company or a co-generation facility
to the premises of the end-user; pursuant to the provisions of this Act;

(p) “Distribution Wheeling Charge” refers to (z) “Grid” refers to the high voltage backbone
the cost or charge regulated by the ERC system of interconnected transmission
for the use of a distribution system and/ lines, substations and related facilities;
or the availment of related services;
(aa) “Grid Code” refers to the set of rules
(q) “Distribution Utility” refers to any and regulations governing the safe
electric cooperative, private corporation, and reliable operation, maintenance
government-owned utility or existing local and development of the high voltage
government unit which has an exclusive backbone transmission system and its
franchise to operate a distribution system related facilities;
in accordance with this Act;
(bb) “Independent Power Producer” or “IPP”
(r) “Electric cooperative” refers to a refers to an existing power generating
distribution utility organized pursuant to entity which is not owned by NPC;
Presidential Decree No. 269, as amended,
or as otherwise provided in this Act; (cc) “Inter-Class Cross Subsidy” refers to an
amount charged by distribution utilities
(s) “Electric Power Industry Participant” to industrial and commercial end-users
refers to any person or entity engaged in as well as to other subsidizing customer
the generation, transmission, distribution sectors in order to reduce electricity
or supply of electricity; rates of other customer sectors such as
the residential end-users, hospitals, and
(t) “End-user” refers to any person or entity streetlights;
requiring the supply and delivery of
electricity for its own use; (dd) “Inter-Regional Grid Cross Subsidy” refers
to an amount embedded in the electricity
(u) “Energy Regulatory Board” or “ERB” rates of NPC charged to its customers
refers to the independent, quasi-judicial located in a viable regional grid in order
regulatory body created under Executive to reduce the electricity rates in a less
Order No. 172, as amended; viable regional grid;

(v) “Energy Regulatory Commission” or (ee) “Intra-Regional Grid Cross Subsidy” refers
“ERC” refers to the regulatory agency to an amount embedded in the electricity
created herein; rates of NPC charged to distribution
utilities and non-utilities with higher load
factor and/or delivery voltage in order DOE and submitted to Congress pursuant
to reduce the electricity rates charged to Republic Act No. 7638;
to distribution utilities with lower load
factor and/or delivery voltage located in (nn) “Power Development Program” or “PDP”
the same regional grid; refers to the indicative plan for managing
electricity demand through energy-
(ff) “IPP Administrator” refers to qualified efficient programs and for the upgrading,
independent entities appointed by expansion, rehabilitation, repair and
PSALM Corporation who shall administer, maintenance of power generation and
conserve and manage the contracted transmission facilities, formulated and
energy output of NPC IPP contracts; updated yearly by the DOE in coordination
with the generation, transmission and
(gg) “Isolated Distribution System” refers distribution utility companies;
to the backbone system of wires
and associated facilities not directly (oo) “Power Sector Assets and Liabilities
connected to the national transmission Management Corporation” or “PSALM
system; Corp.” refers to the corporation created
pursuant to Section 49 hereof;
(hh) “Lifeline Rate” refers to the subsidized
rate given to low-income captive market (pp) “Privatization” refers to the sale,
end-users who cannot afford to pay at disposition, change and transfer of
full cost; ownership and control of assets and
IPP contracts from the Government or
(ii) “National Electrification Administration” a government corporation to a private
or “NEA” refers to the government agency person or entity;
created under Presidential Decree No.
269, as amended, and whose additional (qq) “Renewable Energy Resources” refers
mandate is further set forth herein; to energy resources that do not have an
upper limit on the total quantity to be
(jj) “National Power Corporation” or “NPC” used. Such resources are renewable on
refers to the government corporation a regular basis and the renewable rate is
created under Republic Act No. 6395, as rapid enough to consider availability over
amended; an indefinite time. These include, among
others, biomass, solar, wind, hydro and
(kk) “National Transmission Corporation” or ocean energy;
“TRANSCO” refers to the corporation
organized pursuant to this Act to acquire (rr) “Restructuring” refers to the process of
all the transmission assets of the NPC; reorganizing the electric power industry
in order to introduce higher efficiency,
(ll) “Open Access” refers to the system of greater innovation and end-user choice.
allowing any qualified person the use It shall be understood as covering a range
of transmission, and/or distribution of alternatives enhancing exposure of the
system, and associated facilities subject industry to competitive market forces;
to the payment of transmission and/or
distribution retail wheeling rates duly (ss) “Retail Rate” refers to the total price paid
approved by the ERC; by end-users consisting of the charges
for generation, transmission and related
(mm) “Philippine Energy Plan” or “PEP” ancillary services, distribution, supply
refers to the overall energy program and other related charges for electric
formulated and updated yearly by the service;
(tt) “Small Power Utilities Group” or generator or a distributor in the franchise
“SPUG” refers to the functional unit area of a distribution utility using the
of NPC created to pursue missionary wires of the distribution utility concerned;
electrification function;
(aaa) “Transmission Charge” refers to the
(uu) “Stranded contract costs of NPC or regulated cost or charges for the use of
distribution utility” refer to the excess of a transmission system which may include
the contracted cost of electricity under the availment of ancillary services;
eligible contracts over the actual selling
price of the contracted energy output (bbb) “Transmission Development Plan” or
of such contracts in the market. Such “TDP” refers to the program for managing
contracts shall have been approved by the transmission system through efficient
the ERB as of December 31, 2000; planning for the expansion, upgrading,
rehabilitation, repair and maintenance, to
(v v) “Stranded Debts of NPC” refer to any be formulated by DOE and implemented
unpaid financial obligations of NPC which by the TRANSCO pursuant to this Act;
have not been liquidated by the proceeds
from the sales and privatization of NPC (ccc) “Transmission of Electricity” refers to
assets; the conveyance of electricity through the
high voltage backbone system; and
(ww) “Subtransmission Assets” refer to the
facilities related to the power delivery (ddd) “Universal Charge” refers to the
service below the transmission voltages charge, if any, imposed for the recovery
and based on the functional assignment of the stranded cost and other purposes
of assets including, but not limited to pursuant to Section 34 hereof.
step-down transformers used solely by
load customers, associated switchyard/ CHAPTER II
substation, control and protective ORGANIZATION AND OPERATION OF THE
equipment, reactive compensation ELECTRIC POWER INDUSTRY
equipment to improve customer power
factor, overhead lines, and the land SEC. 5. Organization. – The electric power
such facilities/equipment are located. industry shall be divided into four (4)
These include NPC assets linking the sectors, namely: generation, transmission,
transmission system and the distribution distribution and supply.
system which are neither classified as
generation nor transmission; SEC. 6. Generation Sector. – Generation of
electric power, a business affected with public
(xx) “Supplier” refers to any person or entity interest, shall be competitive and open.
authorized by the ERC to sell, broker,
market or aggregate electricity to the Upon the effectivity of this Act, any new
end-users; generation company shall, before it
operates, secure from the Energy Regulatory
(yy) “Supplier’s Charge” refers to the charge Commission (ERC) a certificate of compliance
imposed by electricity suppliers for the pursuant to the standards set forth in this Act,
sale of electricity to end-users, excluding as well as health, safety and environmental
the charges for generation, transmission clearances from the appropriate government
and distribution wheeling; agencies under existing laws.

(zz) “Supply of Electricity” means the sale Any law to the contrary notwithstanding,
of electricity by a party other than a power generation shall not be considered
a public utility operation. For this purpose, National Power Corporation (NPC), and have
any person or entity engaged or which shall the powers and functions hereinafter granted.
engage in power generation and supply of The TRANSCO shall assume the authority
electricity shall not be required to secure a and responsibility of NPC for the planning,
national franchise. construction and centralized operation and
maintenance of its high voltage transmission
Upon implementation of retail competition facilities, including grid interconnections and
and open access, the prices charged by ancillary services.
a generation company for the supply of
electricity shall not be subject to regulation Within six (6) months from the effectivity of
by the ERC except as otherwise provided in this Act, the transmission and subtransmission
this Act. facilities of NPC and all other assets related
to transmission operations, including the
Pursuant to the objective of lowering nationwide franchise of NPC for the operation
electricity rates to end-users, sales of of the transmission system and the grid, shall
generated power by generation companies be transferred to the TRANSCO.
shall be value added tax zero-rated.
The TRANSCO shall be wholly owned by
The ERC shall, in determining the existence the Power Sector Assets and Liabilities
of market power abuse or anti-competitive Management Corporation (PSALM Corp.).
behavior, require from generation companies
the submission of their financial statements. The subtransmission functions and assets
shall be segregated from the transmission
SEC. 7. Transmission Sector. – The transmission functions, assets and liabilities for
of electric power shall be regulated common transparency and disposal: Provided, That the
electricity carrier business, subject to the subtransmission assets shall be operated and
ratemaking powers of the ERC. maintained by TRANSCO until their disposal
to qualified distribution utilities which are
The ERC shall set the standards of the voltage in a position to take over the responsibility
transmission that shall distinguish the for operating, maintaining, upgrading, and
transmission from the subtransmission assets. expanding said assets.
Pending the issuance of such new standards,
the distinction between the transmission and All transmission and subtransmission related
subtransmission assets shall be as follows: liabilities of NPC shall be transferred to and
230 kilovolts and above in the Luzon grid, assumed by the PSALM Corp.
69 kilovolts and above in the Visayas and in
the isolated distribution systems, and 138 TRANSCO shall negotiate with and thereafter
kilovolts and above in the Mindanao Grid: transfer such functions, assets, and associated
Provided, That for the Visayas and the isolated liabilities to the qualified distribution utility
distribution system, should the 69 kilovolt line or utilities connected to such subtransmission
not form part of the main transmission grid facilities not later than two (2) years from
and be directly connected to the substation the effectivity of this Act or the start of open
of the distribution utility, it shall form part of access, whichever comes earlier: Provided,
the subtransmission system. That in the case of electric cooperatives,
the TRANSCO shall grant concessional
SEC. 8. Creation of the National Transmission financing over a period of twenty (20) years:
Company. – There is hereby created a National Provided, however, That the installment
Transmission Corporation, hereinafter payments to TRANSCO for the acquisition of
referred to as TRANSCO, which shall assume subtransmission facilities shall be given first
the electrical transmission function of the priority by the electric cooperatives out of the
net income derived from such facilities. The (a) Act as the system operator of the
TRANSCO shall determine the disposal value nationwide electrical transmission and
of the subtransmission assets based on the subtransmission system, to be transferred
revenue potential of such assets. to it by NPC;

In case of disagreement in valuation, (b) Provide open and non-discriminatory
procedures, ownership participation and access to its transmission system to all
other issues, the ERC shall resolve such issues. electricity users;

The take over by a distribution utility of (c) Ensure and maintain the reliability,
any subtransmission asset shall not cause adequacy, security, stability and integrity
a diminution of service and quality to of the nationwide electrical grid in
the end-users. Where there are two or accordance with the performance
more connected distribution utilities, the standards for the operations and
consortium or juridical entity shall be formed maintenance of the grid, as set forth in a
by and composed of all of them and thereafter Grid Code to be adopted and promulgated
shall be granted a franchise to operate the by the ERC within six (6) months from the
subtransmission asset by the ERC. effectivity of this Act;

The subscription rights of each distribution (d) Improve and expand its transmission
utility involved shall be proportionate to their facilities, consistent with the Grid Code
load requirements unless otherwise agreed and the Transmission Development Plan
by the parties. (TDP) to be promulgated pursuant to
this Act, to adequately serve generation
Aside from the PSALM Corp., TRANSCO and companies, distribution utilities and
connected distribution utilities, no third party suppliers requiring transmission service
shall be allowed ownership or management and/or ancillary services through the
participation, in whole or in part, in such transmission system: Provided, That
subtransmission entity. TRANSCO shall submit any plan for
expansion or improvement of its facilities
The TRANSCO may exercise the power of for approval by the ERC;
eminent domain subject to the requirements
of the Constitution and existing laws. Except (e) Subject to technical constraints, the grid
as provided herein, no person, company or operator of the TRANSCO shall provide
entity other than the TRANSCO shall own any central dispatch of all generation facilities
transmission facilities. connected, directly or indirectly, to the
transmission system in accordance with
Prior to the transfer of the transmission the dispatch schedule submitted by the
functions by NPC to TRANSCO, and before market operator, taking into account
the promulgation of the Grid Code, ERC shall outstanding bilateral contracts; and
ensure that NPC shall provide to all electric
power industry participants open and non- (f) TRANSCO shall undertake the preparation
discriminatory access to its transmission of the TDP.
system. Any violation thereof shall be subject
to the fines and penalties imposed herein. In the preparation of the TDP, TRANSCO
shall consult the other participants of
SEC. 9. Functions and Responsibilities. – the electric power industry such as the
Upon the effectivity of this Act, the TRANSCO generation companies, distribution utilities,
shall have the following functions and and the electricity end-users. The TDP shall
responsibilities:
be submitted to the DOE for integration regulations of the Bangko Sentral ng
with the Power Development Program and Pilipinas;
the Philippine Energy Plan, provided for in
Republic Act No. 7638, otherwise known as (f) To maintain a provident fund which
the “Department of Energy Act of 1992”. consists of contributions made by
both the TRANSCO and its officials and
A generation company may develop and own employees and their earnings for the
or operate dedicated point-to-point limited payment of benefits to such officials
transmission facilities that are consistent with and employees or their heirs under such
the TDP: Provided, That such facilities are terms and conditions as it may prescribe;
required only for the purpose of connecting
to the transmission system, and are used (g) To do any act necessary or proper to
solely by the generating facility, subject to carry out the purpose for which it is
prior authorization by the ERC: Provided, created, or which, from time to time,
further, That in the event that such assets may be declared by the TRANSCO
are required for competitive purposes, Board as necessary, useful, incidental or
ownership of the same shall be transferred to auxiliary to accomplish its purposes and
the TRANSCO at a fair market price: Provided, objectives; and
finally, That in the case of disagreement on
the fair market price, the ERC shall determine (h) Generally, to exercise all the powers of
the fair market value of the asset. a corporation under the corporation law
insofar as they are not inconsistent with
SEC. 10. Corporate Powers of the TRANSCO. this Act.
– As a corporate entity, TRANSCO shall have
the following corporate powers: SEC. 11. TRANSCO Board of Directors. – All
the powers of the TRANSCO shall be vested
(a) To have continuous succession under its in and exercised by a Board of Directors.
corporate name until otherwise provided The Board shall be composed of a Chairman
by law; and six (6) members. The Secretary of the
Department of Finance (DOF) shall be the
(b) To adopt and use a corporate seal and ex officio Chairman of the Board. The other
to change, alter or modify the same, if members of the TRANSCO Board shall include
necessary; the Secretary of the Department of Energy
(DOE), the Secretary of the Department of
(c) To sue and be sued; Environment and Natural Resources (DENR),
the President of TRANSCO, and three (3)
(d) To enter into a contract and execute any members to be appointed by the President,
instrument necessary or convenient for each representing Luzon, Visayas and
the purpose for which it is created; Mindanao.

(e) To borrow funds from any source, whether The members of the Board so appointed by
private or public, foreign or domestic, the President of the Philippines shall serve for
and issue bonds and other evidence of a term of six (6) years, except that any person
indebtedness: Provided, That in the case appointed to fill-in a vacancy shall serve only
of the bond issues, it shall be subject the unexpired term of his/her predecessor
to the approval of the President of the in office. All members of the Board shall be
Philippines upon recommendation of the professionals of recognized competence and
Secretary of Finance: Provided, further, expertise in the fields of engineering, finance,
That foreign loans shall be obtained in economics, law or business management. No
accordance with existing laws, rules and member of the Board or any of his relatives
within the fourth civil degree of consanguinity SEC. 14. Board Per Diems and Allowances. –
or affinity shall have any interest, either as The members of the Board shall receive per
investor, officer or director, in any generation diem for each regular or special meeting of the
company or distribution utility or other entity board actually attended by them, and, upon
engaged in transmitting, generating and approval of the Secretary of the Department
supplying electricity specified by ERC. of Finance, such other allowances as the
Board may prescribe.
SEC. 12. Powers and Duties of the Board. –
The following are the powers of the Board: SEC. 15. Quorum. – The presence of at least
four (4) members of the Board shall constitute
(a) To provide strategic direction for a quorum, which shall be necessary for the
TRANSCO, and formulate medium transaction of any business. The affirmative
and long-term strategies pursuant to vote of a majority of the members present in
the vision, mission, and objectives of a quorum shall be adequate for the approval
TRANSCO; of any resolution, decision or order, except
when the Board shall otherwise agree that a
(b) To develop and adopt policies and greater vote is required.
measures for the efficient and effective
management and operation of TRANSCO; SEC. 16. Powers of the President of TRANSCO.
– The President of TRANSCO shall be
(c) To organize, re-organize, and determine appointed by the President of the Philippines.
the organizational structure and staffing In the absence of the Chairman, the President
patterns of TRANSCO; abolish and create shall preside over board meetings.
offices and positions; fix the number of
its officers and employees; transfer and The President of TRANSCO shall be the Chief
re-align such officers and personnel; Executive Officer of TRANSCO and shall have
fix their compensation, allowance, and the following powers and duties:
benefits;
(a) To execute and administer the policies
(d) To fix the compensation of the President and measures approved by the Board,
of TRANSCO and to appoint and fix the and take responsibility for the efficient
compensation of other corporate officers; discharge of management functions;

(e) For cause, to suspend or remove any (b) To oversee the preparation of the budget
corporate officer appointed by the of TRANSCO;
Board;
(c) To direct and supervise the operation and
(f) To adopt and set guidelines for the internal administration of TRANSCO and,
employment of personnel on the basis of for this purpose, may delegate some or
merit, technical competence, and moral any of his administrative responsibilities
character; and and duties to other officers of TRANSCO;

(g) Any provisions of the law to the contrary (d) Subject to the guidelines and policies
notwithstanding, to write-off bad debts. set up by the Board, to appoint and
fix the number and compensation of
SEC. 13. Board Meetings. – The Board shall subordinate officials and employees of
meet as often as may be necessary upon the TRANSCO; and for cause, to remove,
call of the Chairman of the Board or by a suspend, or otherwise discipline any
majority of the Board members. subordinate employee of TRANSCO;

(e) To submit an annual report to the Board transmission business shall neither subsidize
on the activities and achievements of in any way such business undertaking nor
TRANSCO at the close of each fiscal year encumber its transmission assets in any way
and upon approval thereof, submit a copy to support such business.
to the President of the Philippines and to
such other agencies as may be required SEC. 21. TRANSCO Privatization. – Within
by law; six (6) months from the effectivity of this Act,
the PSALM Corp. shall submit a plan for the
(f) To represent TRANSCO in all dealings and endorsement by the Joint Power Commission
transactions with other offices, agencies, and the approval of the President of the
and instrumentalities of the Government Philippines. The President of the Philippines
and with all persons and other entities, thereafter shall direct PSALM Corp. to award
private or public, domestic or foreign; in open competitive bidding, the transmission
and facilities, including grid interconnections and
ancillary services to a qualified party either
(g) To exercise such other powers and duties through an outright sale or a concession
as may be vested in him by the Board contract. The buyer/concessionaire shall be
from time to time. responsible for the improvement, expansion,
operation, and/or maintenance of its
SEC. 17. Exemption from the Salary transmission assets and the operation of any
Standardization Law. – The salaries and related business. The award shall result in
benefits of employees in the TRANSCO shall maximum present value of proceeds to the
be exempt from Republic Act No. 6758 and national government. In case a concession
shall be fixed by the TRANSCO Board. contract is awarded, the concessionaire shall
have a contract period of twenty-five (25)
SEC. 18. Profits. – The net profit, if any, of years, subject to review and renewal for a
TRANSCO shall be remitted to the PSALM maximum period of another twenty-five (25)
Corp. not later than ninety (90) days after the years.
immediately preceding quarter.
In any case, the awardee shall comply with
SEC. 19. Transmission Charges. – The the Grid Code and the TDP as approved. The
transmission charges of the TRANSCO shall be sale agreement/concession contract shall
filed with and approved by the ERC pursuant include, but not limited to, the provision
to Paragraph (f) of Section 43 hereof. for performance and financial guarantees
or any other covenants which the national
SEC. 20. TRANSCO Related Businesses. – government may require. Failure to comply
TRANSCO may engage in any related business with such obligations shall result in the
which maximizes utilization of its assets: imposition of appropriate sanctions or
Provided, That a portion of the net income penalties by the ERC.
derived from such undertaking utilizing assets
which form part of the rate base shall be The awardee shall be financially and
used to reduce transmission wheeling rates technically capable, with proven domestic
as determined by the ERC. Such portion of and/or international experience and expertise
net income used to reduce the transmission as a leading transmission system operator.
wheeling rates shall not exceed fifty percent Such experience must be with a transmission
(50%) of the net income derived from such system of comparable capacity and coverage
undertaking. as the Philippines.

Separate accounts shall be maintained for SEC. 22. Distribution Sector. – The distribution
each business undertaking to ensure that the of electricity to end-users shall be a regulated
common carrier business requiring a national standards. The ERC shall, within sixty (60)
franchise. Distribution of electric power to days upon receipt of such plan, evaluate
all end-users may be undertaken by private the same and notify the distribution utility
distribution utilities, cooperatives, local concerned of its action. Failure to submit a
government units presently undertaking this feasible and credible plan and/or failure to
function and other duly authorized entities, implement the same shall serve as grounds
subject to regulation by the ERC. for the imposition of appropriate sanctions,
fines or penalties.
SEC. 23. Functions of Distribution Utilities. – A
distribution utility shall have the obligation to Distribution utilities shall prepare and
provide distribution services and connections submit to the DOE their annual distributions
to its system for any end-user within its developments plans. In the case of electric
franchise area consistent with the Distribution cooperatives, such plans shall be submitted
Code. Any entity engaged therein shall through the National Electrification
provide open and non-discriminatory access Administration.
to its distribution system to all users.
Distribution utilities shall provide universal
Any distribution utility shall be entitled to service within their franchise, over a
impose and collect distribution wheeling reasonable time from the requirement
charges and connection fees from such end- thereof, including unviable areas, as part of
users as approved by the ERC. their social obligations, in a manner that shall
sustain the economic viability of the utility,
A distribution utility shall have the obligation subject to the approval by the ERC in the case
to supply electricity in the least cost manner of private or government-owned utilities. To
to its captive market, subject to the collection this end, distribution utilities shall submit to
of retail rate duly approved by the ERC. the DOE their plans for serving such areas
as part of their distribution development
To achieve economies of scale in utility plans. Areas which a franchised distribution
operations, distribution utilities may, after utility cannot or does not find viable may be
due notice and public hearing, pursue transferred to another distribution utility, if
structural and operational reforms such as any is available, who will provide the service,
but not limited to, joint actions between or subject approval by ERC. In cases where
among the distribution utilities, subject to franchise holders fail and/or refuse to service
the guidelines issued by the ERC. Such joint any area within their franchise territory and
actions shall result in improved efficiencies, allowed another utility to service the same,
reliability of service, reduction of costs and then the status quo shall be respected.
compliance to the performance standards
prescribed in the IRR of this Act. Distribution utilities may exercise the power of
eminent domain subject to the requirements
Distribution utilities shall submit to the ERC of the Constitution and existing laws.
a statement of their compliance with the
technical specifications prescribed in the SEC. 24. Distribution Wheeling Charge. – The
Distribution Code and the performance distribution wheeling charges of distribution
standards prescribed in the IRR of this utilities shall be filed with and approved by
Act. Distribution utilities which do not the ERC pursuant to Paragraph (f) of Section
comply with any of the prescribed technical 43 hereof.
specifications and performance standards
shall submit to the ERC a plan to comply, SEC. 25. Retail Rate. – The retail rates
within three (3) years, with said prescribed charged by distribution utilities for the supply
technical specifications and performance of electricity in their captive market shall be
subject to regulation by the ERC based on SEC. 28. De-Monopolization and Shareholding
the principle of full recovery of prudent and Dispersal. – In compliance with the
reasonable economic costs incurred, or such constitutional mandate for dispersal of
other principles that will promote efficiency ownership and de-monopolization of public
as may be determined by the ERC. utilities, the holdings of persons, natural
or juridical, including directors, officers,
Every distribution utility shall identify stockholders and related interests, in a
and segregate in its bills to end-users the distribution utility and their respective holding
components of the retail rate, as defined in companies shall not exceed twenty-five (25%)
this Act. percent of the voting shares of stock unless
the utility or the company holding the shares
SEC. 26. Distribution Related Businesses. – or its controlling stockholders are already
Distribution utilities may, directly or indirectly, listed in the Philippine Stock Exchange (PSE):
engage in any related business undertaking Provided, That controlling stockholders of
which maximizes the utilization of their assets: small distribution utilities are hereby required
Provided, That a portion of the net income to list in the PSE within five (5) years from the
derived from such undertaking utilizing enactment of this Act if they already own the
assets which form part of the rate base shall stocks. New controlling stockholders shall
be used to reduce its distribution wheeling undertake such listing within five (5) years
charges as determined by the ERC. Provided, from the time they acquire ownership and
further, That such portion of net income used control. A small distribution company is one
to reduce their distribution wheeling charges whose peak demand is equal to or less than
shall not exceed fifty percent (50%) of the Ten megawatts (10 MW).
net income derived from such undertaking:
Provided, finally, That separate accounts are The ERC shall, within sixty (60) days from the
maintained for each business undertaking effectivity of this Act, promulgate the rules
to ensure that the distribution business shall and regulations to implement and effect this
neither subsidize in any way such business provision.
undertaking nor encumber its distribution
assets in any way to support such business. This Section shall not apply to electric
cooperatives.
SEC. 27. Franchising Power in the Electric
Power Sector. – The power to grant franchises SEC. 29. Supply Sector. – The supply sector
to persons engaged in the transmission and is a business affected with public interest.
distribution of electricity shall be vested Except for distribution utilities and electric
exclusively in the Congress of the Philippines cooperatives with respect to their existing
and all laws inconsistent with this Act franchise areas, all suppliers of electricity to
particularly, but not limited to, Section 43 of the contestable market shall require a license
PD 269, otherwise known as the “National from the ERC.
Electrification Decree”, are hereby deemed
repealed or modified accordingly: Provided, For this purpose, the ERC shall promulgate
That all existing franchises shall be allowed rules and regulations prescribing the
to their full term: Provided, further, That in qualifications of electricity suppliers which
the case of electric cooperatives, renewals shall include, among other requirements, a
and cancellations shall remain with the demonstration of their technical capability,
National Electrification Commission under financial capability, and creditworthiness:
the National Electrification Administration for Provided, That the ERC shall have authority to
five (5) more years after the enactment of this require electricity suppliers to furnish a bond
Act. or other evidence of the ability of a supplier
to withstand market disturbances or other
events that may increase the cost of providing (a) Establishing the merit order dispatch
service. instructions for each time period;

Any law to the contrary notwithstanding, (b) Determining the market-clearing price
supply of electricity to the contestable for each time period;
market shall not be considered a public utility
operation. For this purpose, any person or (c) Administering the market, including
entity which shall engage in the supply of criteria for admission to and termination
electricity to the contestable market shall not from the market which includes security
be required to secure a national franchise. or performance bond requirements,
voting rights of the participants,
The prices to be charged by suppliers for the surveillance and assurance of compliance
supply of electricity to the contestable market of the participants with the rules and the
shall not be subject to regulation by the ERC. formation of the wholesale electricity
spot market governing body;
Electricity suppliers shall be subject to the
rules and regulations concerning abuse of (d) Prescribing guidelines for the market
market power, cartelization, and other anti- operation in system emergencies; and
competitive or discriminatory behavior to be
promulgated by the ERC. (e) Amending the rules.

In its billings to end-users, every supplier shall The wholesale electricity spot market shall
identify and segregate the components of its be implemented by a market operator in
supplier’s charge, as defined herein. accordance with the wholesale electricity
spot market rules. The market operator shall
SEC. 30. Wholesale Electricity Spot Market. be an autonomous group, to be constituted
– Within one (1) year from the effectivity by DOE, with equitable representation from
of this Act, the DOE shall establish a electric power industry participants, initially
wholesale electricity spot market composed under the administrative supervision of
of the wholesale electricity spot market the TRANSCO. The market operator shall
participants. The market shall provide the undertake the preparatory work and initial
mechanism for identifying and setting the operation of the wholesale electricity spot
price of actual variations from the quantities market. Not later than one (1) year after the
transacted under contracts between sellers implementation of the wholesale electricity
and purchasers of electricity. spot market, an independent entity shall be
formed and the functions, assets and liabilities
Jointly with the electric power industry of the market operator shall be transferred
participants, the DOE shall formulate the to such entity with the joint endorsement
detailed rules for the wholesale electricity of the DOE and the electric power industry
spot market. Said rules shall provide the participants. Thereafter, the administrative
mechanism for determining the price of supervision of the TRANSCO over such entity
electricity not covered by bilateral contracts shall cease.
between sellers and purchasers of electricity
users. The price determination methodology Subject to the compliance with the
contained in said rules shall be subject to the membership criteria, all generating
approval of ERC. Said rules shall also reflect companies, distribution utilities, suppliers,
accepted economic principles and provide bulk consumers/end-users and other similar
a level playing field to all electric power entities authorized by the ERC shall be
industry participants. The rules shall provide, eligible to become members of the wholesale
among others, procedures for: electricity spot market.
The ERC may authorize other similar entities implemented not later than three (3) years
to become eligible as members, either upon the effectivity of this Act, subject to the
directly or indirectly, of the wholesale following conditions:
electricity spot market. All generating
companies, distribution utilities, suppliers, (a) Establishment of the wholesale electricity
bulk consumers/end-users and other similar spot market;
entities authorized by the ERC, whether
direct or indirect members of the wholesale (b) Approval of unbundled transmission and
electricity spot market, shall be bound by the distribution wheeling charges;
wholesale electricity spot market rules with
respect to transactions in that market. (c) Initial implementation of the cross
subsidy removal scheme;
NEA may, in exchange for adequate security
and a guarantee fee, act as a guarantor for (d) Privatization of at least seventy (70%)
purchases of electricity in the wholesale percent of the total capacity of generating
electricity spot market by any electric assets of NPC in Luzon and Visayas; and
cooperative or small distribution utility to
support their credit standing consistent with (e) Transfer of the management and control
the provisions hereof. For this purpose, of at least seventy percent (70%) of the
the authorized capital stock of NEA is total energy output of power plants
hereby increased to Fifteen billion pesos (P under contract with NPC to the IPP
15,000,000,000.00). Administrators.

All electric cooperatives which have Upon the initial implementation of open
outstanding uncollected billings to any local access, the ERC shall allow all electricity end-
government unit shall report such billings to users with a monthly average peak demand
NEA which shall, in turn, report the same to of at least one megawatt (1 MW) for the
the Department of Budget and Management preceding twelve (12) months to be the
(DBM) for collection pursuant to Executive contestable market. Two (2) years thereafter,
Order 190 issued on December 21, 1999. the threshold level for the contestable market
shall be reduced to seven hundred fifty
The cost of administering and operating the kilowatts (750 kW). At this level, aggregators
wholesale electricity spot market shall be shall be allowed to supply electricity to end-
recovered by the market operator through users whose aggregate demand within a
a charge imposed to all market members: contiguous area is at least seven hundred
Provided, That such charge shall be filed with fifty kilowatts (750 kW). Subsequently and
and approved by the ERC. every year thereafter, the ERC shall evaluate
the performance of the market. On the basis
In cases of national and international security of such evaluation, it shall gradually reduce
emergencies or natural calamities, the ERC is threshold level until it reaches the household
hereby empowered to suspend the operation demand level. In the case of electric
of the wholesale electricity spot market or cooperatives, retail competition and open
declare a temporary wholesale electricity access shall be implemented not earlier than
spot market failure. five (5) years upon the effectivity of this Act.

SEC. 31. Retail Competition and Open SEC. 32. NPC Stranded Debt and Contract
Access. – Any law to the contrary Cost Recovery. – Stranded debt of NPC shall
notwithstanding, retail competition and refer to any unpaid financial obligations of
open access on distribution wires shall be NPC.

Stranded contract costs of NPC shall refer to cost of NPC IPP generation projects, including
the excess of the contracted cost of electricity direct or indirect subsidies or incentives
under eligible IPP contracts of NPC over the provided by the Government.
actual selling price of the contracted energy
output of such contracts in the market. Such Within one (1) year from the start of open
contracts shall have been approved by the access, any distribution utility that seeks
ERB as of December 31, 2000. recovery of stranded contract costs shall file
with the ERC notice of such intent together
The national government shall directly with an estimate of such obligations, including
assume a portion of the financial obligations the present value thereof and such other
of NPC in an amount not to exceed Two supporting data as may be required by the
hundred billion pesos (P 200,000,000,000,00) ERC. Any distribution utility that does not file
within the date specified shall not be eligible
The ERC shall verify the reasonable amounts for such recovery.
and determine the manner and duration
for the full recovery of stranded debt and Any distribution utility which seeks to recover
stranded contract costs as defined herein: stranded cost shall have a duty to mitigate its
Provided, That the duration for such recovery potential stranded contract costs by making
shall not be shorter than fifteen (15) years reasonable best efforts to:
nor longer than twenty-five (25) years. The
ERC shall, at the end of the first year of the (a) reduce the costs of its existing contracts
implementation of stranded cost recovery with IPPs to a level not exceeding the
and every year thereafter, conducts a review average buying price of other land-based
to determine whether there is under- electric power generators; and
recovery or over-recovery and adjust (tune-
up) the level of stranded cost recovery charge (b) submit to an annual earnings review by
accordingly. Any amount to be included for the ERC and use its earnings above its
stranded cost recovery shall be reflected authorized rate of return to reduce the
as a separate item in the consumer billing book value of contracts until the end of
statement. the stranded cost recovery period.

SEC. 33. Distribution Utilities Stranded Other mitigating measures which are
Contract Costs Recovery. – Stranded contract reasonably known and generally accepted
costs of distribution utilities shall refer to the within the electric power industry shall
excess of the contracted cost of electricity be utilized. The ERC shall not require the
under eligible contracts of such utilities over distribution utility to take a loss to reduce
the actual selling price of such contracts in stranded contract costs or divest assets,
the market. Such contracts shall have been unless the divestiture is imposed as a penalty
approved by the ERB as of December 31, as provided herein.
2000.
The relevant distribution utility shall submit
A distribution utility shall recover stranded to the ERC quarterly reports showing the
contract costs: Provided, however, That amount of stranded costs recovered and the
such costs of the IPPs of distribution utilities balance remaining to be recovered.
are subject to review by ERC in order to
determine fairness and reasonableness in Within three (3) months from the submission
relation to the average price of land-based of the application for stranded cost recovery
IPP projects entered into by NPC at the time by the relevant distribution utilities, the ERC
they were contracted. The ERC shall take into shall verify the reasonable amounts and
consideration all factors that affect the total determine the manner and duration for the
full recovery of stranded contract costs as hour (P 0.0025/kWh), which shall accrue
defined herein: Provided, That the duration to an environmental fund to be used
for such recovery shall not be shorter than solely for watershed rehabilitation and
fifteen (15) years nor longer than twenty- management. Said fund shall be managed
five (25) years. Any amount to be included by NPC under existing arrangements; and
for stranded cost recovery shall be reflected
as a separate item in the consumer billing (e) A charge to account for all forms of cross-
statement. subsidies for a period not exceeding
three (3) years.
The ERC shall, at the end of the first year
of the implementation of stranded cost The universal charge shall be non-bypassable
recovery and every year thereafter, conduct a charge which shall be passed on and
review to determine whether there is under- collected from all end-users on a monthly
recovery or over recovery and adjust (true- basis by the distribution utilities. Collections
up) the level of stranded cost recovery charge by the distribution utilities and the TRANSCO
accordingly. In case of an over-recovery, the in any given month shall be remitted to
ERC shall ensure that any excess amount the PSALM Corp. on or before the fifteenth
shall be remitted to the Special Trust Fund (15th) of the succeeding month, net of
created under Section 34 hereof. A separate any amount due to the distribution utility.
account shall be created for these amounts Any end-user or self-generating entity not
which shall be held in trust for any future connected to a distribution utility shall remit
claims of distribution utilities for stranded its corresponding universal charge directly to
cost recovery. At the end of the stranded the TRANSCO.
cost recovery period, any remaining amount
in this account shall be used to reduce the The PSALM Corp., as administrator of the
electricity rates to the end-users. fund, shall create a Special Trust Fund which
shall be disbursed only for the purposes
SEC. 34. Universal Charge. – Within one (1) specified herein in an open and transparent
year from the effectivity of this Act, a universal manner. All amounts collected for the
charge to be determined, fixed and approved universal charge shall be distributed to the
by the ERC, shall be imposed on all electricity respective beneficiaries within a reasonable
end-users for the following purposes: period to be provided by the ERC.

(a) Payment for the stranded debts in excess SEC. 35. Royalties, Returns and Tax Rates
of the amount assumed by the National for Indigenous Energy Resources. – The
Government and stranded contract costs provisions of Section 79 of Commonwealth
of NPC and as well as qualified stranded Act No. 137 (C.A. No. 137) and any law to the
contract costs of distribution utilities contrary notwithstanding, the President of the
resulting from the restructuring of the Philippines shall reduce the royalties, returns
industry; and taxes collected for the exploitation of all
indigenous sources of energy, including but
(b) Missionary electrification; not limited to, natural gas and geothermal
steam, so as to effect parity of tax treatment
(c) The equalization of the taxes and royalties with the existing rates for imported coal,
applied to indigenous or renewable crude oil, bunker fuel and other imported
sources of energy vis-à-vis imported fuels.
energy fuels;
To ensure lower rates for end-users, the ERC
(d) An environmental charge equivalent to shall forthwith reduce the rates of power
one-fourth of one centavo per kilowatt- from all indigenous sources of energy.
SEC. 36. Unbundling of Rates and Functions. program for the efficient supply and
– Within six (6) months from the effectivity of economical use of energy consistent with
this Act, NPC shall file with the ERC its revised the approved national economic plan
rates. The rates of NPC shall be unbundled and with the policies on environmental
between transmission and generation rates protection and conservation and
and the rates shall reflect the respective costs maintenance of ecological balance, and
of providing each service. provide a mechanism for the integration,
rationalization, and coordination of
Inter-grid and intra-grid cross subsidies for the various energy programs of the
both the transmission and the generation Government;
rates shall be removed in accordance with
this Act. (b) Develop and update annually the
existing Philippine Energy Plan,
Within six (6) months from the effectivity of hereinafter referred to as “The Plan”,
this Act, each distribution utility shall file its which shall provide for an integrated
revised rates for the approval by the ERC. and comprehensive exploration,
The distribution wheeling charge shall be development, utilization, distribution,
unbundled from the retail rate and the rates and conservation of energy resources,
shall reflect the respective costs of providing with preferential bias for environment-
each service. For both the distribution retail friendly, indigenous, and low-cost sources
wheeling and supplier’s charges, inter-class of energy. The plan shall include a policy
subsidies shall be removed in accordance direction towards the privatization of
with this Act. government agencies related to energy,
deregulation of the power and energy
Within six (6) months from the date of industry, and reduction of dependency
submission of revised rates by NPC and each on oil-fired plants. Said Plan shall be
distribution utility, the ERC shall notify the submitted to Congress not later than the
entities of their approval. fifteenth day of September and every
year thereafter;
Any electric power industry participant shall
functionally and structurally unbundle its (c) Prepare and update annually a Power
business activities and rates in accordance Development Program (PDP) and
with the sectors as identified in Section 5 integrate the same into the Philippine
hereof. The ERC shall ensure full compliance Energy Plan. The PDP shall consider
with this provision. and integrate the individual or joint
development plans of the transmission,
CHAPTER III generation, and distribution sectors of
ROLE OF THE DEPARTMENT OF ENERGY the electric power industry, which are
submitted to the Department: Provided,
SEC. 37. Powers and Functions of the DOE. – In however, That the ERC shall have exclusive
addition to its existing powers and functions, authority covering the Grid Code and the
the DOE is hereby mandated to supervise pertinent rules and regulations it may
the restructuring of the electricity industry. issue;
In pursuance thereof, Section 5 of RA 7638
otherwise known as “The Department of (d) Ensure the reliability, quality and security
Energy Act of 1992” is hereby amended to of supply of electric power;
read as follows:
(e) Following the restructuring of the
(a) Formulate policies for the planning and electricity sector, the DOE shall, among
implementation of a comprehensive others:
(i) Encourage private sector investments to meet demand including, among
in the electricity sector and promote others, reserve requirements;
development of indigenous and
renewable energy sources; (j) Monitor private sector activities relative
to energy projects in order to attain the
(ii) Facilitate and encourage reforms goals of the restructuring, privatization,
in the structure and operations and modernization of the electric power
of distribution utilities for greater sector as provided for under existing laws:
efficiency and lower costs; Provided, That the Department shall
endeavor to provide for an environment
(iii) In consultation with other conducive to free and active private
government agencies, promote a sector participation and investment in all
system of incentives to encourage energy activities;
industry participants, including new
generating companies and end-users (k) Assess the requirements of, determine
to provide adequate and reliable priorities for, provide direction to, and
electric supply; and disseminate information resulting from
energy research and development
(iv) Undertake in coordination with programs for the optimal development of
the ERC, NPC, NEA and the various forms of energy production and
Philippine Information Agency (PIA), utilization technologies;
information campaign to educate
the public on the restructuring of the (l) Formulate and implement programs,
electricity sector and privatization of including a system of providing incentives
NPC assets. and penalties, for the judicious and
efficient use of energy in all energy-
(f) Jointly with the electric power industry consuming sectors of the economy;
participants, establish the wholesale
electricity spot market and formulate the (m) Formulate and implement a program for
detailed rules governing the operations the accelerated development of non-
thereof; conventional energy systems and the
promotion and commercialization of its
(g) Establish, administer and regulate applications;
programs for the exploration,
transportation, marketing, distribution, (n) Devise ways and means of giving
utilization, conservation, stockpiling, direct benefit to the province, city, or
and storage of energy resources of all municipality, especially the community
forms, whether conventional or non- and people affected, and equitable
conventional; preferential benefit to the region that
hosts the energy resource and/or the
(h) Exercise supervision and control over all energy-generating facility: Provided,
government activities relative to energy however, That the other provinces, cities,
projects in order to attain the goals municipalities, or regions shall not be
embodied in Section 2 of RA 7638; deprived of their energy requirements;

(i) Develop policies and procedures and, (o) Encourage private enterprises engaged in
as appropriate, promote a system of energy projects, including corporations,
energy development incentives to enable cooperatives, and similar collective
and encourage electric power industry organizations, to broaden the base of
participants to provide adequate capacity
their ownership and thereby encourage positions necessary to carry out the powers
the widest public ownership of energy- and functions of the ERC.
oriented corporations;
The Chairman of the Commission, who shall
(p) Formulate such rules and regulations be a member of the Philippine Bar, shall act as
as may be necessary to implement the the Chief Executive Officer of the Commission.
objectives of this Act; and
All members of the Commission shall have a
(q) Exercise such other powers as may be term of seven (7) years: Provided, That for
necessary or incidental to attain the the first appointees, the Chairman shall hold
objectives of this Act. office for seven (7) years, two (2) members
shall hold office for five (5) years and the other
CHAPTER IV two (2) members shall hold office for three
REGULATION OF THE (3) years; Provided, further, That appointment
ELECTRIC POWER INDUSTRY to any future vacancy shall only be for the
unexpired term of the predecessor: Provided,
SEC. 38. Creation of the Energy Regulatory finally, That there shall be no reappointment
Commission. – There is hereby created and in no case shall any member serve for
an independent, quasi-judicial regulatory more than seven (7) years in the Commission.
body to be named the Energy Regulatory
Commissions (ERC). For this purpose, the The Chairman and members of the Commission
existing Energy Regulatory Board (ERB) shall assume office of the beginning of their
created under Executive Order No. 172, as terms: Provided, That, if upon the effectivity
amended, is hereby abolished. of this Act, the Commission has not been
constituted and the new staffing pattern and
The Commission shall be composed of plantilla positions have not been approved
a Chairman and four (4) members to be and filled-up, the current Board and existing
appointed by the President of the Philippines. personnel of ERB shall continue to hold office.
The Chairman and the members of the
Commission shall be natural-born citizens and The existing personnel of the ERB, if qualified,
residents of the Philippines, persons of good shall be given preference in the filling up of
moral character, at least thirty-five (35) years plantilla positions created in the ERC, subject
of age, and of recognized competence in any of to existing civil service rules and regulations.
the following fields: energy, law, economics,
finance, commerce, or engineering, with at Members of the Commission shall enjoy
least three (3) years actual and distinguished security of tenure and shall not be suspended
experience in their respective fields of or removed from office except for just cause
expertise: Provided, That out of the four (4) as specified by law.
members of the Commission, at least one (1)
shall be a member of the Philippine Bar with The Chairman and members of the
at least ten (10) years experience in the active Commission or any of their relatives within
practice of law, and one (1) shall be a certified the fourth civil degree of consanguinity or
public accountant with at least ten (10) years affinity, legitimate or common law, shall
experience in active practice. be prohibited from holding any interest
whatsoever, either as investor, stockholder,
Within three (3) months from the creation of officer or director, in any company or entity
the ERC, the Chairman shall submit for the engaged in the business of transmitting,
approval by the President of the Philippines generating, supplying or distributing any form
the new organizational structure and plantilla of energy and must, therefore, divest through

sale or legal disposition of any and all interests SEC. 40. Enhancement of Technical
in the energy sector upon assumption of Competence. – The ERC shall establish
office. rigorous training programs for its staff for
the purpose of enhancing the technical
The presence of at least three (3) members competence of the ERC in the following areas:
of the Commission shall constitute a quorum evaluation of technical performance and
and the majority vote of two (2) members in monitoring of compliance with service and
a meeting where a quorum is present shall be performance standards, performance-based
necessary for the adoption of any rule, ruling, rate-setting reform, environmental standards
order, resolution, decision, or other act of and such other areas as will enable the ERC to
the Commission in the exercise of its quasi- adequately perform its duties and functions.
judicial functions: Provided, That in fixing
rates and tariffs, an affirmative vote of three SEC. 41. Promotion of Consumer Interests. –
(3) members shall be required. The ERC shall handle consumer complaints
and ensure the adequate promotion of
SEC. 39. Compensation and Other consumer interests.
Emoluments for ERC Personnel. – The
compensation and other emoluments SEC. 42. Budget of the ERC. – The amount
for the Chairman and members of the of One hundred fifty million pesos (P
Commission and the ERC personnel shall be 150,000,000.00) is hereby allocated from
exempted from the coverage of Republic Act the existing budget of the ERB for the initial
No. 6758, otherwise known as the “Salary operation of the ERC. Any balance shall
Standardization Act”. For this purpose, initially be sourced from the Office of the
the schedule of compensation of the ERC President of the Philippines. Thereafter, the
personnel, except for the initial salaries and annual budget of the ERC shall be included in
compensation of the Chairman and members the regular or special appropriations.
of the Commission, shall be submitted for
approval by the President of the Philippines. SEC. 43. Functions of the ERC. –The ERC
The new schedule of compensation shall be shall promote competition, encourage
implemented within six (6) months from the market development, ensure customer
effectivity of this Act and may be upgraded by choice and penalize abuse of market power
the President of the Philippines as the need in the restructured electricity industry. In
arises: Provided, That in no case shall the rate appropriate cases, the ERC is authorized to
be upgraded more than once a year. issue cease and desist order after due notice
and hearing. Towards this end, it shall be
The Chairman and members of the responsible for the following key functions in
Commission shall initially be entitled to the the restructured industry:
same salaries, allowances and benefits as
those of the Presiding Justice and Associate (a) Enforce the implementing rules and
Justices of the Supreme Court, respectively. regulations of this Act;
The Chairman and the members of the
Commission shall, upon completion of (b) Within six (6) months from the effectivity
their term or upon becoming eligible for of this Act, promulgate and enforce, in
retirement under existing laws, be entitled accordance with law, a National Grid
to the same retirement benefits and the Code and a Distribution Code which shall
privileges provided for the Presiding Justice include, but not limited to, the following:
and Associate Justices of the Supreme Court,
respectively. (i) Performance standards for TRANSCO
O & M Concessionaire, distribution
utilities and suppliers: Provided,
That in the establishment of the the regulated entities. The rates must be
performance standards, the nature such as to allow the recovery of just and
and function of the entities shall be reasonable costs and a reasonable return
considered; and on rate base (RORB) to enable the entity
to operate viably. The ERC may adopt
(ii) Financial capability standards for alternative forms of internationally-
the generating companies, the accepted rate-setting methodology as
TRANSCO, distribution utilities and it may deem appropriate. The rate-
suppliers: Provided, further, That setting methodology so adopted and
such standards are set to ensure applied must ensure a reasonable price
that the electric power industry of electricity. The rates prescribed shall
participants meet the minimum be non-discriminatory. To achieve this
financial standards to protect the objective and to ensure the complete
public interest. Determine, fix, and removal of cross subsidies, the cap on
approve, after due notice and public the recoverable rate of system losses
hearings the universal charge, to be prescribed in Section 10 of Republic
imposed on all electricity end-users Act No. 7832, is hereby amended and
pursuant to Section 34 hereof. shall be replaced by caps which shall
be determined by the ERC based on
(c) Enforce the rules and regulations load density, sales mix, cost of service,
governing the operations of the electricity delivery voltage and other technical
spot market and the activities of the spot considerations it may promulgate.
market operator and other participants The ERC shall determine such form or
in the spot market, for the purpose of rate-setting methodology, which shall
ensuring a greater supply and rational promote efficiency. In case the rate
pricing of electricity; setting methodology used is RORB, it shall
be subject to the following guidelines:
(d) Determine the level of cross subsidies in
the existing retail rate until the same is (i) For purposes of determining the
removed pursuant to Section 74 hereof; rate base, the TRANSCO or any
distribution utility may be allowed to
(e) Amend or revoke, after due notice and revalue its eligible assets not more
hearing, the authority to operate of any than once every three (3) years by
person or entity which fails to comply an independent appraisal company:
with the provisions hereof, the IRR or any Provided, however, That ERC may
order or resolution of the ERC. In the give an exemption in case of unusual
event a divestment is required, the ERC devaluation: Provided, further,
shall allow the affected party sufficient That the ERC shall exert efforts to
time to remedy the infraction or for an minimize price shocks in order to
orderly disposal, but in no case exceed protect the consumers;
twelve (12) months from the issuance of
the order; (ii) Interest expenses are not allowable
deductions from permissible return
(f) In the public interest, establish and on rate base;
enforce a methodology for setting
transmission and distribution wheeling (iii) In determining eligible cost of
rates and retail rates for the captive services that will be passed on to the
market of a distribution utility, taking end-users, the ERC shall establish
intro account all relevant considerations, minimum efficiency performance
including the efficiency or inefficiency of standards for the TRANSCO and
distribution utilities including systems power, cartelization, and anti-competitive
losses, interruption frequency rates, or discriminatory behavior by any electric
and collection efficiency; power industry participant;

(iv) Further, in determining rate base, (l) Impose fines or penalties for any non-
the TRANSCO or any distribution compliance with or breach of this Act,
utility shall not be allowed to include the IRR of this Act and the rules and
management inefficiencies like regulations which it promulgates or
cost of project delays not excused administers;
by force majeure, penalties and
related interest during construction (m) Take any other action delegated to it
applicable to these unexcused pursuant to this Act;
delays; and
(n) Before the end of April of each year,
(v) Any significant operating costs or submit to the Office of the President
project investments of the TRANSCO of the Philippines and Congress, copy
and distribution utilities which shall furnished the DOE, an annual report
become part of the rate base shall containing such matters or cases which
be subject to verification by the have been filed before or referred to it
ERC to ensure that the contracting during the preceding year, the actions
and procurement of the equipment, and proceedings undertaken and its
assets and services have been decision or resolution in each case. The
subjected to transparent and ERC shall make copies of such reports
accepted industry procurement and available to any interested party upon
purchasing practices to protect the payment of a charge which reflects the
public interest. printing costs. The ERC shall publish all
its decisions involving rates and anti-
(g) Three (3) years after the imposition of the competitive cases in at least one (1)
universal charge, ensure that the charges newspaper of general circulation, and/
of the TRANSCO or any distribution utility or post electronically and circulate to
shall bear no cross subsidies between all interested electric power industry
grids, within grids, or between classes of participants copies of its resolutions to
customers, except as provided herein; ensure fair and impartial treatment;

(h) Review and approve any changes on the (o) Monitor the activities in the generation
terms and conditions of service of the and supply of the electric power industry
TRANSCO or any distribution utility; with the end in view of promoting
free market competition and ensuring
(i) Allow the TRANSCO to charge user fees that the allocation or pass through of
for ancillary services to all electric power bulk purchase cost by distributors is
industry participants or self-generating transparent, non-discriminatory and that
entities connected to the grid. Such fees any existing subsidies shall be divided
shall be fixed by the ERC after due notice pro-rata among all retail suppliers;
and public hearing;
(p) Act on applications for or modifications
(j) Set a lifeline rate for the marginalized of certificates of public convenience
end-users; and/or necessity, licenses or permits of
franchised electric utilities in accordance
(k) Monitor and take measures in accordance with law and revoke, review and modify
with this Act to penalize abuse of market such certificates, licenses or permits in
appropriate cases, such as in cases of existing companies, such public offering
violations of the Grid Code, Distribution shall be implemented not later than five
Code and other rules and regulations (5) years from the effectivity of this Act.
issued by the ERC in accordance with law; New companies shall implement their
respective public offerings not later than
(q) Act on applications for cost recovery and five (5) years from the issuance of their
return on demand side management certificate of compliance; and
projects;
(u) The ERC shall have the original and
(r) In the exercise of its investigative and exclusive jurisdiction over all cases
quasi-judicial powers, act against any contesting rates, fees, fines and penalties
participant or player in the energy imposed by the ERC in the exercise of
sector for violations of any law, rule and the above mentioned powers, functions
regulation governing the same, including and responsibilities and over all cases
the rules on cross-ownership, anti- involving disputes between and among
competitive practices, abuse of market participants or players in the energy
positions and similar or related acts by sector.
any participant in the energy sector or
by any person, as may be provided by All notices of hearings to be conducted by the
law, and require any person or entity ERC for the purpose of fixing rates or fees shall
to submit any report or data relative to be published at least twice for two successive
any investigation or hearing conducted weeks in two (2) newspapers of nationwide
pursuant to this Act; circulation.

(s) Inspect, on its own or through duly SEC. 44. Transfer of Powers and Functions.
authorized representatives, the – The powers and functions of the Energy
premises, books of accounts and records Regulatory Board not inconsistent with the
of any person or entity at any time, in the provisions of this Act are hereby transferred
exercise of its quasi-judicial power for to the ERC. The foregoing transfer of powers
purposes of determining the existence and functions shall include all applicable funds
of any anti-competitive behavior and/or and appropriations, records, equipment,
market power abuse and any violation of property and personnel as may be necessary.
rules and regulations issued by the ERC;
SEC. 45. Cross Ownership, Market Power
(t) Perform such other regulatory functions Abuse and Anti-Competitive Behavior. –
as are appropriate and necessary in order No participant in the electricity industry
to ensure the successful restructuring or any other person may engage in any
and modernization of the electric power anti-competitive behavior including, but
industry, such as, but not limited to, not limited to, cross-subsidization, price or
the rules and guidelines under which market manipulation, or other unfair trade
generation companies, distribution practices detrimental to the encouragement
utilities which are not publicly listed shall and protection of contestable markets.
offer and sell to the public a portion not
less than fifteen percent (15%) of their No generation company, distribution utility,
common shares of stocks: Provided, or its respective subsidiary or affiliate or
however, That generation companies, stockholder or official of a generation
distribution utilities or their respective company or distribution utility, or other
holding companies that are already listed entity engaged in generating and supplying
in the PSE are deemed in compliance. For electricity specified by ERC within the fourth

civil degree of consanguinity or affinity, shall not reached household demand level.
be allowed to hold any interest, directly or For the purpose of preventing market
indirectly, in TRANSCO or its concessionaire. power abuse between associated firms
Likewise, the TRANSCO, or its concessionaire engaged in generation and distribution,
or any of its stockholders or officials or any of no distribution utility shall be allowed
their relatives within the fourth civil degree to source from bilateral power supply
of consanguinity or affinity, shall not hold contracts more than fifty percent (50%)
any interest, whether directly or indirectly, of its total demand from an associated
in any generation company or distribution firm engaged in generation but such
utility. Except for ex officio government- limitation, however, shall not prejudice
appointed representatives, no person who is contracts entered into prior to the
an officer or director of the TRANSCO or its effectivity of this Act. An associated firm
concessionaire shall be an officer or director with respect to another entity refers to
of any generation company, distribution any person which, alone or together with
utility or supplier. any other person, directly or indirectly,
through one or more intermediaries,
An “affiliate” means any person which, controls, is controlled by, or is under
alone or together with any other person, common control with, such entity; and
directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is (c) For the first five (5) years from the
under common control with another person. establishment of the wholesale electricity
As used herein, “control” shall mean the spot market, no distribution utility shall
power to direct or cause the direction of the source more than ninety percent (90%)
management policies of a person by contract, of its total demand from bilateral power
agency or otherwise. supply contracts.

To promote true market competition and For purposes of this Section, the grid basis
prevent harmful monopoly and market power shall consist of three (3) separate grids,
abuse, the ERC shall enforce the following namely Luzon, Visayas and Mindanao. The
safeguards: ERC shall have the authority to modify or
amend this definition of a grid when two or
(a) No company or related group can own, more of the three separate grids become
operate or control more than thirty sufficiently interconnected to constitute a
percent (30%) of the installed generating single grid or as conditions may otherwise
capacity of a grid and/or twenty-five permit.
percent (25%) of the national installed
generating capacity. “Related group” Exceptions from these limitations shall
includes a person’s business interests, be allowed for isolated grids that are not
including its subsidiaries, affiliates, connected to the high voltage transmission
directors or officers or any of their system. Except as otherwise provided for
relatives by consanguinity or affinity, in this Section, any restriction on ownership
legitimate or common law, within the and/or control between or within sectors of
fourth civil degree; the electricity industry may be imposed by
ERC only insofar as the enforcement of the
(b) Distribution utilities may enter into provisions of this Section is concerned.
bilateral power supply contracts subject
to review by the ERC: Provided, That The ERC shall, within one (1) year from the
such review shall only be required for effectivity of this Act, promulgate rules
distribution utilities whose markets have and regulations to ensure and promote

competition, encourage market development Any person who is found guilty of any of
and customer choice and discourage/penalize the prohibited acts pursuant to Section 45
abuse of market power, cartelization and any hereof shall suffer the penalty of prision
anti-competitive or discriminatory behavior, mayor and fine ranging from Ten thousand
in order to further the intent of this Act and pesos (P 10,000.00) to Ten million pesos (P
protect the public interest. Such rules and 10,000,000.00), or both, at the discretion of
regulations shall define the following: the court.

(a) the relevant markets for purposes of The members of the Board of Directors of the
establishing abuse or misuse of monopoly juridical companies participating in or covered
or market position; in the generation companies, the distribution
utilities, the TRANSCO or its concessionaire
(b) areas of isolated grids; and or supplier who violate the provisions of this
Act may be fined by an amount not exceeding
(c) the periodic reportorial requirements double the amount of damages caused by
of electric power industry participants the offender or by imprisonment of one (1)
as may be necessary to enforce the year or two (2) years or both at the discretion
provisions of this Section. of the court. This rule shall apply to the
members of the Board who knowingly or by
The ERC shall, motu proprio, monitor neglect allows the commission or omission
and penalize any market power abuse or under the law.
anti-competitive or discriminatory act or
behavior by any participant in the electric If the offender is a government official or
power industry. Upon finding that a market employee, he shall, in addition, be dismissed
participant has engaged in such act or from the government service with prejudice
behavior, the ERC shall stop and redress to reinstatement and with perpetual or
the same. Such remedies shall, without temporary disqualification from holding any
limitation, include the imposition of price elective or appointive office.
controls, issuance of injunctions, requirement
of divestment or disgorgement of excess If the offender is an alien, he may, in addition
profits and imposition of fines and penalties to the penalties prescribed, be deported
pursuant to this Act. without further proceedings after service of
sentence.
The ERC shall, within one (1) year from the
effectivity of this Act, promulgate rules Any case which involves question of fact shall
and regulations providing for a complaint be appealable to the Court of Appeals and
procedure that, without limitation, provides those which involve question of law shall be
the accused party with notice and an directly appealable to the Supreme Court.
opportunity to be heard.
The administrative sanction that may be
SEC. 46. Fines and Penalties. – The fines and imposed by the ERC shall be without prejudice
penalties that shall be imposed by the ERC for to the filing of a criminal action, if warranted.
any violation of or non-compliance with this
Act or the IRR shall range from a minimum To ensure compliance with this Act, the
of fifty thousand pesos (P 50,000.00) penalty of prision correccional or a fine ranging
to a maximum of Fifty million pesos (P from Five thousand pesos (P 5,000.00) to Five
50,000,000.00). million pesos (P 5,000,000.00), or both, at
the discretion of the court, shall be imposed
on any person, including but not limited to

the president, member of the Board, Chief (a) The privatization value to the National
Executive Officer or Chief Operating Officer Government of the NPC generation
of the corporation, partnership, or any other assets, real estate, other disposable
entity involved, found guilty of violating or assets as well as IPP contracts shall be
refusing to comply with any provision of this optimized;
Act or its IRR, other than those provided
herein. (b) The participation by Filipino citizens and
corporations in the purchase of NPC
Any party to an administrative proceeding assets shall be encouraged:
may, at any time, make an offer to the ERC,
conditionally or otherwise, for a consented In the case of foreign investors, at least
decree, voluntary compliance or desistance seventy-five percent (75%) of the funds
and other settlement of the case. The offer used to acquire NPC generation assets
and any or all of the ultimate facts upon and IPP contracts shall be inwardly
which the offer is based shall be considered remitted and registered with the Bangko
for settlement purposes only and shall not Sentral ng Pilipinas.
be used as evidence against any party for any
other purpose and shall not constitute an (c) The NPC plants and/or IPP contracts
admission by the party making the offer of assigned to IPP Administrators, its
any violation of the laws, rules, regulations, related assets and assigned liabilities,
orders and resolutions of the ERC, nor as a if any, shall be grouped in a manner
waiver to file any warranted criminal actions. which shall promote the viability of the
resulting generation companies (gencos),
In addition, Congress may, upon ensure economic efficiency, encourage
recommendation of the DOE and/or ERC, competition, foster reasonable electricity
revoke such franchise or privilege granted to rates and create market appeal to
the party who violated the provisions of this optimize returns to the government
Act. from the sale and disposition of such
assets in a manner consistent with the
CHAPTER V objectives of this Act. In the grouping of
PRIVATIZATION OF THE ASSETS OF THE the generation assets and IPP contracts
NATIONAL POWER CORPORATION of NPC, the following criteria shall be
considered:
SEC. 47. NPC Privatization. – Except for the
assets of SPUG, the generation assets, real (1) A sufficient scale of operations
estate, and other disposable assets as well and balance sheet strength to
as IPP contracts of NPC shall be privatized in promote the financial viability of the
accordance with this Act. restructured units;

Within six (6) months from the effectivity (2) Broad geographical groupings to
of this Act, the PSALM Corp. shall submit ensure efficiency of operations but
a plan for the endorsement by the Joint without the formation of regional
Congressional Power Commission and the companies or consolidation of
approval of the President of the Philippines, market power;
on the total privatization of the generation
assets, real estate, other disposable assets (3) Portfolio of plants and IPP contracts
as well as existing IPP contracts of NPC to achieve management and
and thereafter, implement the same, in operational synergy without
accordance with the following guidelines, dominating any part of the market or
except as provided for in Paragraph (f) herein: of the load curve; and
(4) Such other factors as may be deemed (h) The ownership of the Caliraya-Botokan-
beneficial to the best interest of the Kalayaan (CBK) pump storage complex
National Government while ensuring shall be transferred to the PSALM
attractiveness to potential investors. Corporation;

(d) All assets of NPC shall be sold in an open (i) Not later than three (3) years
and transparent manner through public from the effectivity of this Act,
bidding, and the same shall apply to the and in no case later than the initial
disposition of IPP contracts; implementation of open access, at
least seventy percent (70%) of the
(e) In cases of transfer of possession, total capacity of generating assets of
control, operation or privatization of NPC and of the total capacity of the
multi-purpose hydro facilities, safeguards power plants under contract with
shall be prescribed to ensure that the NPC located in Luzon and Visayas
national government may direct water shall have been privatized: Provided,
usage in cases of shortage to protect That any unsold capacity shall be
potable water, irrigation, and all other privatized not later than eight (8)
requirements imbued with public years from the effectivity of this Act;
interest; and

(f) The Agus and the Pulangui complexes in (ii) NPC may generate and sell electricity
Mindanao shall be excluded from among only from the undisposed generating
the generation companies that will be assets and IPP contracts of PSALM
initially privatized. Their ownership Corp. and shall not incur any new
shall be transferred to the PSALM Corp. obligations to purchase power
and both shall continue to be operated through bilateral contracts with
by the NPC. Said complexes may be generation companies or other
privatized not earlier than ten (10) years suppliers.
from the effectivity of this Act, and
except for Agus III, shall not be subject SEC. 48. National Power Board of Directors.
to Build-Operate-Transfer (B-O-T), Build- – Upon the passage of this Act, Section 6
Rehabilitate-Operate-Transfer (B-R-O-T) of R.A. 6395, as amended, and Section 13
and other variations thereof pursuant to of R.A. 7638, as amended, referring to the
Republic Act No. 6957, as amended by composition of the National Power Board
Republic Act No. 7718. The privatization of Directors, are hereby repealed and a new
of Agus and Pulangui complexes shall be Board shall be immediately organized. The
left to the discretion of PSALM Corp. in new Board shall be composed of the Secretary
consultation with Congress; of Finance as Chairman, with the following
as members: the Secretary of Energy, the
(g) The steamfield assets and generating Secretary of Budget and Management, the
plants of each geothermal complex Secretary of Agriculture, the Director-General
shall not be sold separately. They shall of the National Economic and Development
be combined and each geothermal Authority, the Secretary of Environment and
complex shall be sold as one package Natural Resources, the Secretary of Interior
through public bidding. The geothermal and Local Government, the Secretary of the
complexes covered by this requirement Department of Trade and Industry, and the
include, but are not limited to, Tiwi- President of the National Power Corporation.
Makban, Leyte A and B (Tongonan),
Palinpinon, and Mt. Apo;

CHAPTER VI NPC assets and IPP contracts and the
POWER SECTOR ASSETS AND LIABILITIES liquidation of NPC debts and stranded
MANAGEMENT contract costs, such liquidation to be
completed within the term of existence
SEC. 49. Creation of Power Sector Assets of the PSALM Corp.;
and Liabilities Management Corporation. –
There is hereby created a government-owned (b) To take title to and possession of,
and -controlled corporation to be known administer and conserve the assets
as the “Power Sector Assets and Liabilities transferred to it; to sell or dispose of the
Management Corporation”, hereinafter same at such price and under such terms
referred to as the “PSALM Corp.”, which and conditions as it may deem necessary
shall take ownership of all existing NPC or proper, subject to applicable laws,
generation assets, liabilities, IPP contracts, rules and regulations;
real estate and all other disposable assets.
All outstanding obligations of the NPC arising (c) To take title to and possession of the
from loans, issuances of bonds, securities and NPC IPP contracts and to appoint, after
other instruments of indebtedness shall be public bidding in transparent and open
transferred to and assumed by the PSALM manner, qualified independent entities
Corp. within one hundred eighty (180) days who shall act as the IPP Administrators in
from the approval of this Act. accordance with this Act;

SEC. 50. Purpose and Objective, Domicile and (d) To calculate the amount of the stranded
Term of Existence. – The principal purpose debts and stranded contract costs of NPC
of the PSALM Corp. is to manage the orderly which shall form the basis for ERC in the
sale, disposition, and privatization of NPC determination of the universal charge;
generation assets, real estate and other
disposable assets, and IPP contracts with (e) To liquidate the NPC stranded contract
the objective of liquidating all NPC financial costs utilizing proceeds from sales and
obligations and stranded contract costs in an other property contributed to it, including
optimal manner. the proceeds from the universal charge;

The PSALM Corp. shall have its principal office (f) To adopt rules and regulations as may
and place of business within Metro Manila. be necessary or proper for the orderly
conduct of its business or operations;
The PSALM Corp. shall exist for a period of
twenty five (25) years from the effectivity (g) To sue and be sued in its name;
of this Act, unless otherwise provided by
law, and all assets held by it, all moneys and (h) To appoint or hire, transfer, remove and
properties belonging to it, and all its liabilities fix the compensation of its personnel:
outstanding upon the expiration of its term of Provided, however, That the Corporation
existence shall revert to and be assumed by shall hire its own personnel only if
the National Government. absolutely necessary, and as far as
practicable, shall avail itself of the
SEC. 51. Powers. – The Corporation shall, in services of personnel detailed from other
the performance of its functions and for the government agencies;
attainment of its objective, have the following
powers: (i) To own, hold, acquire, or lease real and
personal properties as may be necessary
(a) To formulate and implement a program or required in the discharge of its
for the sale and privatization of the functions;
(j) To borrow money and incur such liabilities, appointed by the President of the Philippines.
including the issuance of bonds, securities In the absence of the Chairman, the President
or other evidences of indebtedness shall preside over Board meetings.
utilizing its assets as collateral and/or
through the guarantees of the National The PSALM Corp. President shall be the Chief
Government: Provided, however, That all Executive Officer of PSALM Corp. and shall
such debts or borrowings shall have been have the following powers and duties:
paid off before the end of its corporate
life; (a) To execute and administer the policies
and measures approved by the Board,
(k) To restructure existing loans of NPC; and take responsibility for the efficient
discharge of management functions;
(l) To collect, administer, and apply NPC’s
portion of the universal charge; and (b) To oversee the preparation of the budget
of PSALM Corp.;
(m) To restructure the sale, privatization
or disposition of NPC assets and IPP (c) To direct and supervise the operation
contracts and/or their energy output and internal administration of PSALM
based on such terms and conditions Corp. and, for this purpose, may delegate
which shall optimize the value and sale some or any of his administrative
prices of said assets. responsibilities and duties to other
officers of PSALM Corp;
SEC. 52. Power Sector Assets and Liabilities
Management Corporation, Meetings, (d) Subject to the guidelines and policies
Quorum and Voting. – The Corporation shall set up by the Board, to appoint and
be administered, and its powers and functions fix the number and compensation of
exercised, by a Board of Directors which shall subordinate officials and employees of
be composed of the Secretary of Finance PSALM Corp.; and for cause, to remove,
as the Chairman, the Secretary of Budget suspend, or otherwise discipline any
and Management, the Secretary of the subordinate employee of PSALM Corp.;
Department of Energy, the Director-General
of the National Economic and Development (e) To submit an annual report to the Board
Authority, the Secretary of the Department on the activities and achievements of
of Justice, the Secretary of the Department of PSALM Corp. at the close of each fiscal
Trade and Industry and the President of the year and upon approval thereof, submit
PSALM Corp. as ex officio members thereof. a copy to the President of the Philippines
and to such other agencies as may be
The Board of Directors shall meet regularly required by law;
and as frequently as may be necessary to
enable it to discharge its functions and (f) To represent PSALM Corp. in all dealings
responsibilities. The presence at a meeting of and transactions with other offices,
four (4) members shall constitute a quorum, agencies, and instrumentalities of the
and the decision of the majority of three (3) Government and with all persons and
members present at a meeting where there is other entities, private or public, domestic
quorum shall be the decision of the Board of or foreign; and
Directors.
(g) To exercise such other powers and duties
SEC. 53. Powers of the President of PSALM as may be vested in him by the Board
Corp. – The President of PSALM Corp. shall be from time to time.

SEC. 54. Exemption from the Salary (c) New loans; and
Standardization Law. – The salaries and
benefits of employees in the PSALM Corp. (d) NPC stranded contract costs.
shall be exempt from Republic Act No. 6758
and shall be fixed by the PSALM Corp. Board. CHAPTER VII
PROMOTION OF RURAL ELECTRIFICATION
SEC. 55. Property of the PSALM Corp. – The
following funds, assets, contributions and SEC. 57. Conversion of Electric
other property shall constitute the property
of the PSALM Corp.: Cooperatives. – Electric cooperatives are
hereby given the option to convert into either
(a) The generation assets, real estate, IPP stock cooperative under the Cooperatives
contracts, other disposable assets of NPC, Development Act or stock corporation under
proceeds from the sale or disposition the Corporation Code. Nothing contained in
of such assets and the residual assets this Act shall deprive electric cooperatives of
from B-O-T, R-O-T, and other variations any privilege or right granted to them under
thereof; Presidential Decree No. 269, as amended,
and other existing laws.
(b) Transfers from the National Government;
SEC. 58. Additional Mandate of the National
(c) Proceeds from loans incurred to Electrification Administration (NEA). – NEA
restructure or refinance NPC’s transferred shall develop and implement programs:
liabilities: Provided, however, That all
borrowings shall be fully paid for by the (a) To prepare electric cooperatives in
end of the life of the PSALM Corp.; operating and competing under the
deregulated electric market within five
(d) Proceeds from the universal charge (5) years from the effectivity of this Act,
allocated for stranded contract costs and specifically in an environment of open
the stranded debts of NPC; access and retail wheeling;

(e) Net profit of NPC; (b) To strengthen the technical capability
and financial viability of rural electric
(f) Net profit of TRANSCO; cooperatives; and

(g) Official assistance, grants, and donations (c) To review and upgrade regulatory policies
from external sources; and with a view to enhancing the viability of
rural electric cooperatives as electric
(h) Other sources of funds as may be utilities.
determined by PSALM Corp. necessary
for the above-mentioned purposes. NEA shall continue to be under the
supervision of the DOE and shall exercise its
SEC. 56. Claims Against the PSALM Corp. functions under Presidential Decree No. 269,
– The following shall constitute the claims as amended by Presidential Decree No. 1645
against the PSALM Corp.: insofar as they are consistent with this Act.

(a) NPC liabilities transferred to the PSALM SEC. 59. Alternative Electric Service for
Corp.; Isolated Villages. – The provision of electric
service in remote and unviable villages that
(b) Transfers from the national government; the franchised utility is unable to service for

any reason shall be opened to other qualified by the Senate President and the Speaker of
third parties. the House of Representatives, respectively.
The minority shall be entitled to pro rata
SEC. 60. Debts of Electric Cooperatives. representation but shall have at least one (1)
– Upon the effectivity of this Act, all representative in the Power Commission.
outstanding financial obligations of electric
cooperatives to NEA and other government The Commission shall, in aid of legislation,
agencies incurred for the purpose of financing perform the following functions, among
the rural electrification program shall be others:
assumed by the PSALM Corp. in accordance
with the program approved by the President (a) Set the guidelines and overall framework
of the Philippines within one (1) year from to monitor and ensure the proper
the effectivity of this Act which shall be implementation of this Act;
implemented and completed within three (3)
years from the effectivity of this Act. (b) Endorse the initial privatization plan
within one (1) month from submission
The ERC shall ensure a reduction in the rates of such plan to the Power Commission
of electric cooperatives commensurate with by PSALM Corp. for approval by the
the resulting savings due to the removal of President of the Philippines;
the amortization payments of their loans.
Within five (5) years from the condonation (c) To ensure transparency, require the
of debt, any electric cooperative which shall submission of reports from government
transfer ownership or control of its assets, agencies concerned on the conduct of
franchise or operations thereof shall repay public bidding procedures regarding
PSALM Corp. the total debts including accrued privatization of NPC generation and
interests thereon. transmission assets;

CHAPTER VIII (d) Review and evaluate the performance
GENERAL PROVISIONS of the industry participants in relation to
the objectives and timelines set forth in
SEC. 61. Reportorial Requirements. – The this Act;
DOE shall take the necessary measures to
ensure that the provisions of this Act are (e) Approve the budget for the programs
properly implemented, and shall submit to of the Power Commission and all
the Power Commission a semiannual report disbursements therefrom, including
on the implementation of this Act, on or compensation of all personnel;
before the last week of April and October of
each year. (f) Submit periodic reports to the President
of the Philippines and Congress;
SEC. 62. Joint Congressional Power
Commission. – Upon the effectivity of this (g) Determine inherent weaknesses in the
Act, a congressional commission, hereinafter law and recommend necessary remedial
referred to as the “Power Commission”, is legislation or executive measures; and
hereby constituted. The Power Commission
shall be composed of fourteen (14) members (h) Perform such other duties and functions
with the chairmen of the Committee on as may be necessary to attain its
Energy of the Senate and the House of objectives.
Representatives and six (6) additional
members from each House, to be designated

In furtherance hereof, the Power Commission The Power Commission shall exist for period
is hereby empowered to require the DOE, of ten (10) years from the effectivity of this Act
ERC, NEA, TRANSCO, generation companies, and may be extended by a joint concurrent
distribution utilities, suppliers and other resolution.
electric power industry participants to
submit reports and all pertinent data and SEC. 63. Separation Benefits of Officials
information relating to the performance of and Employees of Affected Agencies. –
their respective functions in the industry. Any National government employees displaced or
person who willfully and deliberately refuses separated from the service as a result of the
without just cause to extend the support and restructuring of the electricity industry and
assistance required by the Power Commission privatization of NPC assets pursuant to this
to effectively attain its objectives shall, upon Act, shall be entitled to either a separation pay
conviction, be punished by imprisonment and other benefits in accordance with existing
of not less than one (1) year but not more laws, rules or regulations or be entitled
than six (6) years or a fine of not less than to avail of the privileges provided under a
Fifty thousand pesos (P 50,000.00) but not separation plan which shall be one and one-
more than Five hundred thousand pesos (P half month salary for every year of service in
500,000.00) or both at the discretion of the the government: Provided, however, That
court. those who avail of such privilege shall start
their government service anew if absorbed by
The Power Commission shall adopt its internal any government-owned successor company.
rules of procedures; conduct hearings and In no case shall there be any diminution of
receive testimonies, reports and technical benefits under the separation plan until the
advice; invite or summon by subpoena ad full implementation of the restructuring and
testificandum any public official, private citizen privatization.
or any other person to testify before it, or
require any person by subpoena duces tecum Displaced or separated personnel as a result
to produce before it such records, reports, of the privatization, if qualified, shall be given
documents or other materials as it may preference in the hiring of the manpower
require; and generally require all the powers requirements of the privatized companies.
necessary to attain the purposes for which it
is created. The Power Commission shall be The salaries of employees of NPC shall
assisted by a secretariat to be composed of continue to be exempt from the coverage of
personnel who may be seconded from the Republic Act No. 6758, otherwise known as
Senate and the House of Representatives and “The Salary Standardization Act”.
may retain consultants. The secretariat shall
be headed by an executive director who has With respect to employees who are not
sufficient background and competence on retained by NPC, the government, through
the policies and issues relating to electricity the Department of Labor and Employment,
industry reforms as provided in this Act. shall endeavor to implement re-training, job
To carry out its powers and functions, the counseling, and job placement programs.
initial sum of twenty-five million pesos (P
25,000,000.00) shall be charged against SEC. 64. Fiscal Prudence. – To promote
the current appropriations of the Senate. the prudent management of government
Thereafter, such amount necessary for its resources, the creation of new positions and
continued operation shall be included in the the levels of or increase in salaries and all
annual General Appropriations Act. other emoluments and benefits of TRANSCO
and PSALM Corp. personnel shall be subject
to the approval of the President of the

Philippines. The compensation and all other In case of any violation or noncompliance by
emoluments and benefits of the officials and any local government official of any provision
members of the Board of the TRANSCO and thereof, the DILG shall, upon prior notice and
PSALM Corp. shall be subject to the approval hearing, order the project operator, through
of the President of the Philippines. the DOE, to withhold the remittance of the
royalty payment to the host community
SEC. 65. Environmental Protection. – concerned pending completion of the
Participants in the generation, distribution investigation. The unremitted funds shall be
and transmission sub-sectors of the industry deposited in a government bank under a trust
shall comply with all environmental laws, fund.
rules, regulations and standards promulgated
by the Department of Environment and SEC. 67. NPC Offer of Transition Supply
Natural Resources including, in appropriate Contracts. – Within six (6) months from
cases, the establishment of an environmental the effectivity of this Act, NPC shall file with
guarantee fund. the ERC for its approval a transition supply
contract duly negotiated with the distribution
SEC. 66. Benefits to Host Communities. – utilities containing the terms and conditions
The obligations of generation companies and of supply and a corresponding schedule of
energy resource developers to communities rates, consistent with the provisions hereof,
hosting energy generating facilities and/or including adjustments and/or indexation
energy resource developers as defined under formulas which shall apply to the term of
Chapter II, Sections 289 to 294 of the Local such contracts. The term of the transition
Government Code and Section 5(i) of Republic supply contracts shall not extend beyond
Act No. 7638 and their implementing rules one (1) year from the introduction of open
and regulations and applicable orders access. Such contracts shall be based on the
and circulars consistent with this Act shall projected demand of such utilities less any of
continue: Provided, That the obligations their currently committed quantities under
mandated under Chapter II, Section 291 of eligible IPP contracts as defined in Section 33
Republic Act No. 7160, shall apply to privately- hereof: Provided, That the total generation
owned corporations or entities utilizing the capacity of such signed transition supply
national wealth of the locality. contracts shall not exceed the level of NPC
owned, controlled or committed capacity as
To ensure the effective implementation of of the effectivity of this Act. Such transition
the reduction in cost of electricity in the supply contracts shall be assignable to the
communities where the source of energy NPC successor generating companies.
is located, the mechanics and procedures
prescribed in the Department of the Interior Within six (6) months from the date of
and Local Government (DILG)-DOE Circulars submission of the transition supply contract
No. 95-01 and 98-01 dated October 31, by NPC, the ERC shall notify NPC of their
1995 and September 30, 1998, respectively approval of the rates contained therein.
and other issuances related thereto shall be
pursued. The ERC shall maintain a record of the contract
terms and rates offered by NPC. Likewise, the
Towards this end, the fund generated from ERC shall update monthly, the rates using the
the eighty percent (80%) of the national appropriate adjustment and/or indexation
wealth tax shall, in no case, be used by any formula.
local government unit for any purpose other
than those for which it was intended. Notwithstanding the provisions of Section 25
hereof, the rates charged by a distribution
utility for the generation component of the
supply of electricity in their distribution retail their true costs. All amended contracts shall
supply rate shall, for the term of the transition be submitted to the Joint Congressional
supply contracts, not exceed the transition Power Commission for approval. The ERC
supply contract rates, as updated monthly. shall ensure that all savings realized from the
reduction of said mark-ups shall be passed on
The recovery of costs incurred by a distribution to all end-users.
utility for any generation component in
excess of the transition supply contract rates SEC. 70. Missionary Electrification. –
shall be disallowed by the ERC, except for Notwithstanding the divestment and/or
eligible contracts as defined under Section privatization of NPC assets, IPP contracts
33 hereof: Provided, That such limitation on and spun-off corporations, NPC shall remain
the recovery of generation component costs as a National Government-owned and
by a distribution utility shall apply only to the -controlled corporation to perform the
equivalent quality and quantity of electricity missionary electrification function through
still available to the distribution utility from the Small Power Utilities Group (SPUG) and
NPC. shall be responsible for providing power
generation and its associated power delivery
SEC. 68. Review of IPP Contracts. – An inter- systems in areas that are not connected to
agency committee chaired by the Secretary of the transmission system. The missionary
Finance, with the Secretary of the Department electrification function shall be funded from
of Justice and the Director- General of the the revenues from sales in missionary areas
National Economic Development Authority as and from the universal charge to be collected
members thereof is hereby created upon the from all electricity end-users as determined
effectivity of this Act. by the ERC.

The Committee shall immediately undertake SEC. 71. Electric Power Crisis. – Upon
a thorough review of all IPP contracts. In the determination by the President of the
cases where such contracts are found to have Philippines of an imminent shortage of the
provisions which are grossly disadvantageous, supply of electricity, Congress may authorize,
or onerous to the Government, the Committee through a joint resolution, the establishment
shall cause the appropriate government of additional generating capacity under such
agency to file an action under the arbitration terms and conditions as it may approve.
clauses provided in said contracts or initiate
any appropriate action under Philippine laws. SEC. 72. Mandated Rate Reduction. – Upon
The PSALM Corporation shall diligently seek the effectivity of this Act, residential end-
to reduce stranded costs, if any. users shall be granted a rate reduction from
NPC rates of thirty centavos per kilowatt-
SEC. 69. Renegotiation of Power Purchase hour (P 0.30/kWh). Such reduction shall be
and Energy Conversion Agreements between reflected as a separate item in the consumer
Government Entities. – Within three (3) billing statement.
months from the effectivity of this Act, all
power purchase and energy conversion SEC. 73. Lifeline Rate. – A socialized pricing
agreements between the PNOC-Energy mechanism called a lifeline rate for the
Development Corporation (PNOC-EDC) marginalized end-users shall be set by the
and NPC, including but not limited to ERC, which shall be exempted from the cross
the Palimpinon, Tongonan and Mt. Apo subsidy phase-out under this Act for a period
Geothermal complexes, shall be reviewed often (10) years, unless extended by law. The
by the ERC and the terms thereof amended level of consumption and the rate shall be
to remove any hidden costs or extraordinary determined by the ERC after due notice and
mark-ups in the cost of power or steam above hearing.
SEC. 74. Cross Subsidies. – Cross subsidies transmission and distribution services,
within a grid, between grids and/ or classes systems reliability, aggregation, market,
of customers shall be phased out in a itemized billing, stranded cost, uniform
period not exceeding three (3) years from disclosure requirements, low-income bill
the establishment by the ERC of a universal payment, energy conservation and safety
charge which shall be collected form all measures.
electricity end-users. Such level of cross
subsidies shall be made transparent and The DOE, in coordination with the NPC,
identified separately in the billing statements NEA, ERC and the Office of Press Secretary-
provided to end-users by the suppliers. Philippine Information Agency (OPS-PIA),
shall undertake an information campaign to
The ERC may extend the period for the educate the public on the restructuring of the
removal of cross subsidies for a maximum electric power industry and privatization of
period of one (1) year upon finding that NPC.
cessation of such mechanism would have
a material adverse effect upon the public SEC. 77. Implementing Rules and Regulations.
interest, particularly the residential end-user; – The DOE shall, in consultation with relevant
or would have an immediate, irreparable, and government agencies, the electric power
adverse financial effect on distribution utility. industry participants, non-government
organization and end-users, promulgate the
CHAPTER IX Implementing Rules and Regulations (IRR)
FINAL PROVISIONS of the Act within six (6) months from the
effectivity of this Act, subject to the approval
SEC. 75. Statutory Construction. – This Act by the Power Commission.
shall, unless the context indicates otherwise,
be construed in favor of the establishment, SEC. 78. Injunction and Restraining Order. –
promotion, preservation of competition and The implementation of the provisions of the
people empowerment so that the widest Act shall not be restrained or enjoined except
participation of the people, whether directly by an order issued by the Supreme Court of
or indirectly, is ensured. With respect to NPC’s the Philippines.
debts and IPP and related contracts, nothing
in this Act shall be construed as: (1) an implied SEC. 79. Separability Clause. – If for any
waiver of any right, action or claim, against reason, any provision of this act is declared
any person or entity, of NPC or the Philippine unconstitutional or invalid, the other parts
Government arising from or relating to any or provisions hereof which are not affected
such contracts; or (2) a conferment of new or thereby shall continue to be in full force and
better rights to creditors and IPP contractors effect.
in addition to subsisting rights granted by
SEC. 80. Applicability and Repealing
the NPC or the Philippine Government under
Clause. – The applicability provisions of
existing contracts.
Commonwealth Act No. 146, as amended,

otherwise known as the “Public Service Act”;
SEC. 76. Education and Protection of End
Republic Act 6395, as amended, revising
Users. – End-users shall be educated about
the charter of NPC; Presidential Decree 269,
the implementation of retail access and
as amended, referred to as the National
its impact on end-users and on the proper
Electrification Decree; Republic Act 7638,
use of electric power. Such education shall
otherwise known as the “Department of
include, but not limited to, the existence of
Energy Act of 1992”; Executive Order 172,
competitive electricity suppliers, choice of
as amended, creating the ERB; Republic Act
competitive electricity services, regulated
7832 otherwise known as the “Anti-Electricity
and Electric Transmission Lines/ Materials Presidential Decree No. 40 and all laws,
Pilferage Act of 1994”, shall continue to have decrees, rules and regulations, or portion
full force and effect except insofar as they are thereof, inconsistent with this Act are hereby
inconsistent with this Act. repealed or modified accordingly.
The provision with respect to electric power SEC. 81. Effectivity Clause. – This Act shall
of Section 11 (c) of Republic Act 7916, as take effect on the fifteenth day following its
amended, and Section 5 (f) of Republic publication in at least two (2) national paper
Act 7227, are hereby repealed or modified of general circulation.
accordingly.
Approved, June 8, 2001
RULES AND REGULATIONS

TO IMPLEMENT REPUBLIC ACT NO. 9136,
ENTITLED “ELECTRIC POWER INDUSTRY REFORM ACT OF 2001”

Pursuant to Sections 37 and 77 of Republic RULE 1. TITLE AND SCOPE

Act No. 9136, an Act Ordaining Reforms in the
Philippine Electric Power Industry, otherwise SECTION 1. Title. –
known as the “Electric Power Industry Reform
Act of 2001” (Act), the Department of Energy These rules and regulations shall be referred
(DOE), in consultation with the appropriate to as the “Implementing Rules and Regulations
government agencies such as the Energy of Republic Act No. 9136” (Rules) otherwise
Regulatory Commission (ERC), Department known as the “Electric Power Industry Reform
of Finance (DOF), National Electrification Act of 2001” (Act).
Administration (NEA), National Power
Corporation (NPC), Department of Trade and SEC. 2. Scope. –
Industry (DTI), Department of Justice (DOJ),
Department of Budget and Management These Rules are promulgated under the
(DBM), Power Sector Assets and Liabilities authority of the DOE to formulate, in
Management Corporation (PSALM), the consultation with relevant government
Electric Power Industry Participants, and agencies, Electric Power Industry Participants,
with the approval of the Joint Congressional non-government organizations, End-users
Power Commission (Power Commission), and consumers, such rules and regulations as
hereby issues, adopts and promulgates the may be necessary to implement the objectives
following rules and regulations to implement of the Act and pursuant to the exercise of
the provisions of the Act. such other powers as may be necessary or
incidental to attain the objectives of the Act.
PART I – GENERAL PROVISIONS These Rules shall govern the relation and
responsibilities of Electric Power Industry
The succeeding rules and regulations shall Participants and governmental authorities,
include the general provisions to be followed including but not limited to: the DOE, NPC,
in implementing the major structural reforms NEA, ERC, and PSALM.
for the electric power industry and the
privatization of the state-owned NPC.

RULE 2. DECLARATION OF POLICY (j) To establish a strong and purely
independent regulatory body and system
It is hereby declared the policy of the State: to ensure consumer protection and
enhance the competitive operation of
(a) To ensure and accelerate the total the electricity market; and
electrification of the country;
(k) To encourage the efficient use of energy
(b) To ensure the quality, reliability, security and other modalities of Demand Side
and affordability of the supply of electric Management (DSM).
power;
RULE 3. RESPONSIBILITIES OF THE DOE,
(c) To ensure transparent and reasonable ERC, NPC, NEA AND PSALM
prices of electricity in a regime of free
and fair competition and full public SECTION 1. Responsibilities of the DOE. –
accountability to achieve greater
operational and economic efficiency, In addition to its existing powers and
promote consumer choice and enhance functions, the DOE shall supervise the
the competitiveness of Philippine Restructuring of the electricity industry and
products in the global market; perform the following functions:

(d) To enhance the inflow of private capital, (a) Formulate policies for the planning and
participation in the attendant risks, and implementation of a comprehensive
broaden the ownership base of the power program for the efficient supply and
generation, transmission and distribution economical use of energy consistent with
sectors; the approved national economic plan
and with the policies on environmental
(e) To ensure fair and non-discriminatory protection and conservation and
treatment of public and private sector maintenance of ecological balance, and
entities in the process of Restructuring provide a mechanism for the integration,
the electric power industry; rationalization, and coordination of
the various energy programs of the
(f) To protect the public interest as it is Government;
affected by the rates and services of
electric utilities and other providers of (b) Develop and update annually the existing
electric power; Philippine Energy Plan, hereinafter
referred to as PEP, which shall provide
(g) To assure socially and environmentally for an integrated and comprehensive
compatible energy sources and exploration, development, utilization,
infrastructure; distribution, and conservation of energy
resources, with preferential bias for
(h) To promote the utilization of indigenous environment-friendly, indigenous, and
and new and renewable energy resources low-cost sources of energy.
in power generation in order to reduce
dependence on imported energy; The PEP shall include a policy direction
towards the Privatization of government
(i) To provide for an orderly and transparent agencies related to energy, deregulation
Privatization of the assets and liabilities of the power and energy industry, and
of the NPC; reduction of dependency on oil-fired
plants.

Said PEP shall be submitted to Congress including new Generation Companies
not later than the fifteenth (15th) day of and End-users, to provide adequate
September and every year thereafter; and reliable electric supply; and

(c) Prepare and update annually a Power (iv) Undertake, in coordination
Development Program (PDP) and with the ERC, NPC, NEA and the
integrate the same into the PEP. The Philippine Information Agency (PIA),
PDP shall consider and integrate the information campaigns to educate
individual or joint development plans the public on the Restructuring of the
of the transmission, generation, and electricity sector and Privatization of
distribution sectors of the electric power NPC assets;
industry which are submitted to the DOE:
Provided, however, That the ERC shall (f) Jointly with the Electric Power Industry
have exclusive authority covering the Participants, establish the Wholesale
Grid Code and the Distribution Code; and Electricity Spot Market (WESM) and
the pertinent rules and regulations it may formulate the detailed rules governing
issue. The DOE, following its approval of the operations thereof;
the Transmission Development Plan (TDP)
prepared by the National Transmission (g) Establish and administer programs
Corporation (TRANSCO) or its Buyer or for the exploration, transportation,
Concessionaire, shall integrate the TDP marketing, distribution, utilization,
with the annual development plans of conservation, stockpiling, and storage of
Distribution Utilities and NPC, and other energy resources of all forms, whether
relevant data as are available to DOE, conventional or non-conventional;
which shall be incorporated in the PEP;
(h) Exercise supervision and control over all
(d) Ensure the reliability, quality and security government activities relative to energy
of supply of electric power; projects in order to attain the goals
embodied in Section 2 of Republic Act
(e) Following the Restructuring of the No. 7638;
electricity sector, the DOE shall, among
others: (i) Develop policies and procedures and,
as appropriate, promote a system of
(i) Encourage private sector investments energy development incentives to enable
in the electricity sector and promote and encourage Electric Power Industry
development of indigenous and Participants to provide adequate capacity
Renewable Energy Sources including to meet demand including, among
small-scale renewable energy others, reserve requirements;
generating sources;
(j) Monitor private sector activities relative
(ii) Facilitate and encourage reforms to energy projects in order to attain the
in the structure and operations of goals of the Restructuring, Privatization,
Distribution Utilities for greater and modernization of the electric power
efficiency and lower costs; sector as provided for under existing
laws: Provided, That the DOE shall
(iii) In consultation with other endeavor to provide for an environment
government agencies, promote a conducive to free and active private
system of incentives to encourage sector participation and investment in all
Electric Power Industry Participants, energy activities;

(k) Assess the requirements of, determine may require reports or documents from
priorities for, provide direction to, and the Electric Power Industry Participants
disseminate information resulting from as necessary to facilitate compliance with
energy research and development this mandate and subject to appropriate
programs for the optimal development of measures to preserve the confidentiality
various forms of energy production and of proprietary or commercially sensitive
utilization technologies; information; and

(l) Formulate and implement programs, (r) Exercise such other powers as may be
including a system of providing incentives necessary or incidental to attain the
and penalties, for the judicious and objectives of the Act.
efficient use of energy in all energy-
consuming sectors of the economy; SEC. 2. Responsibilities of the NPC. –

(m) Formulate and implement a program for (a) Pursuant to Section 70 of the Act,
the accelerated development of non- notwithstanding the divestment and/or
conventional energy systems and the Privatization of NPC assets, IPP contracts
promotion and commercialization of its and spun-off corporations, NPC shall
applications; remain as a National Government-owned
and –controlled corporation to perform
(n) Devise ways and means of giving the missionary electrification function
direct benefit to the province, city, or through the Small Power Utilities Group
municipality, especially the community (SPUG) and shall be responsible for
and people affected, and equitable providing power generation and its
preferential benefit to the region that associated power delivery systems in
hosts the energy resource and/or the areas that are not connected to the
energy-generating facility: Provided, transmission system. The missionary
however, That the other provinces, cities, electrification function shall be funded
municipalities, or regions shall not be from the revenues from sales in
deprived of their energy requirements; missionary areas and from the Universal
Charge to be collected from all electricity
(o) Encourage private enterprises engaged in End-users as determined by the ERC.
energy projects, including corporations,
cooperatives, and similar collective (b) Consistent with Section 34(d) of the Act,
organizations, to broaden the base of the NPC shall manage under existing
their ownership and thereby encourage arrangements, an environmental charge
the widest public ownership of energy- equivalent to P 0.0025 per kilowatt-
oriented corporations; hour (kWh) sales, intended solely for
the rehabilitation and management of
(p) Formulate such rules and regulations watersheds nationwide.
as may be necessary to implement the
objectives of the Act; (c) Pursuant to Section 47 (f) of the Act,
NPC shall continue to operate Agus
(q) As part of the reportorial requirements and Pulangui complexes, which shall be
of the Act, the DOE shall prepare and owned by PSALM.
submit to the Power Commission a
semi-annual report on the status of the (d) Pursuant to Section 47 (j) of the Act, NPC/
implementation of the Act on or before PSALM may continue to generate and
the last week of April and October of sell electricity only from the undisposed
each year. Towards this end, the DOE generating assets and IPP contracts
of PSALM. NPC/PSALM shall not Utility to support their credit standing
incur any new obligations to purchase consistent with the provisions of the Act.
power through bilateral contracts For this purpose, the authorized capital
with Generation Companies or other stock of NEA is hereby increased to Fifteen
Suppliers. Billion Pesos (P 15,000,000,000.00).

SEC. 3. Responsibilities of the NEA. – (c) NEA shall submit the report of ECs on
their outstanding uncollected billings
(a) NEA shall continue to be under the due from any local government unit
supervision of the DOE and shall exercise (LGU) to the Department of Budget
its functions under Presidential Decree and Management (DBM) pursuant to
No. 269, as amended by Presidential Executive Order (E.O.) No. 190 issued on
Decree No. 1645 insofar as they are 21 December 1999. The DBM shall effect
consistent with the Act. To this end, NEA withholding from the Internal Revenue
shall develop and implement programs: Allotment (IRA) of the concerned LGU:
Provided, That there is a Memorandum
(i) To prepare Electric Cooperatives of Agreement (MOA) executed between
(ECs) in operating and competing the LGU and NEA: Provided, further, That
under the deregulated electricity the uncollected billings are supported by
market within five (5) years from a certification issued by the Municipality/
the effectivity of the Act, specifically City or Provincial Treasurer.
in an environment of Open Access
and retail wheeling and Retail SEC. 4. Responsibilities of the ERC. –
Competition;
(a) Pursuant to Section 43 of the Act, the ERC
(ii) To strengthen the technical capability shall have the responsibility of promoting
and financial viability of ECs, through competition, encouraging market
the following activities: development, ensuring customer choice,
and penalizing abuse of market power in
(1) NEA may offer services to the the electric power industry.
ECs other than those related to
its lending functions, for a fee (b) Pursuant to Sections 43 and 45 of the
duly approved by the NEA Board Act, the ERC shall promulgate such rules
of Administrators; and and regulations as authorized thereby,
including but not limited to Competition
(2) NEA may consider hiring Rules and limitations on recovery of
qualified external industry system losses, and shall impose fines
management experts and shall or penalties for any non-compliance
provide their services to the ECs: with or breach of the Act, these Rules
Provided, That such services will and the rules and regulations which it
not increase Retail Rates. promulgates or administers.

(iii) To review and upgrade regulatory (c) The ERC shall review and approve any
policies with a view to enhancing the plan for the expansion or improvement
viability of the ECs as electric utilities. of transmission facilities submitted by
TRANSCO or its Buyer or Concessionaire
(b) NEA may, in exchange for adequate with due regard to the TDP.
security and a guarantee fee, act as a
guarantor for purchases of electricity in (d) To promote efficiency and non-
the WESM by any EC or small Distribution discrimination, the ERC, after the
conduct of public hearings, shall Section 36 of the Act.
determine, fix and approve Transmission
and Distribution Wheeling Charges, and (f) Amend or revoke, after due notice and
Retail Rates through an ERC established hearing, the authority to operate of any
and enforced methodologies setting the Person or entity which fails to comply
same. It shall fix and regulate the rates with the provisions of the Act, these Rules
and charges to be imposed by Distribution or any order or resolution of the ERC.
Utilities on their Captive Market as well In the event a divestment is required,
as the Universal Charge to be imposed the ERC shall allow the affected party
on all electricity End-users including self- sufficient time to remedy the infraction
generating entities. or for an orderly disposal, but shall in no
case exceed twelve (12) months from the
(e) Any application or petition for rate issuance of the order.
adjustment or for any relief affecting
the consumers must be verified, and (g) In order to facilitate the provision of an
accompanied with an acknowledgement efficient, reliable and quality service to
of receipt of a copy thereof by the LGU End-users, the ERC shall promulgate a
Legislative Body of the locality where Grid Code and a Distribution Code that
the applicant or petitioner principally shall include performance standards
operates together with the certification and the minimum financial capability
of the notice of publication thereof in a standards and other terms and conditions
newspaper of general circulation in the for access to and use of the transmission
same locality. and distribution facilities within six (6)
months from the effectivity of the Act.
The ERC may grant provisionally or
deny the relief prayed for not later than (h) Act on applications for cost recovery and
seventy five (75) calendar days from return on DSM.
the filing of the application or petition,
based on the same and the supporting (i) The ERC shall set the criteria for eligibility
documents attached thereto and such and authorize eligible Generation
comments or pleadings the consumers or Companies, Distribution Utilities,
the LGU concerned may have filed within Suppliers, IPP Administrators, End-users
thirty (30) calendar days from receipt of and other entities authorized by ERC in
a copy of the application or petition or accordance with the Act for membership
from the publication thereof as the case in the WESM. For the purpose of
may be. ensuring a greater supply and rational
pricing of electricity, the ERC shall enforce
Thereafter, the ERC shall conduct a the rules and regulations governing the
formal hearing on the application or operations of WESM and the activities
petition, giving proper notices to all of the WESM Operator and other WESM
parties concerned, with at least one Participants. In cases of national and
public hearing in the affected locality, international security emergencies or
and shall decide the matter on the merits natural calamities, it can suspend spot
not later than twelve (12) months from market operations within the WESM.
the issuance of the aforementioned
provisional order. (j) The ERC shall ensure that Electric
Power Industry Participants and NPC
This Section 4 (e) shall not apply to those functionally and structurally unbundle
applications or petitions already filed as their respective business activities and
of 26 December 2001 in compliance with rates and determine the levels of cross
subsidies in the existing Retail Rates (n) The ERC shall have the original and
until the same is removed in accordance exclusive jurisdiction over all cases
with the sectors as identified in and as contesting rates, fees, fines and penalties
required by Sections 5, 36 and 74 of the imposed in the exercise of its powers,
Act. ERC shall set a Lifeline Rate for the functions and responsibilities and over
Marginalized End-users. In particular, all cases involving disputes between
the distribution rates should unbundle and among participants or players in the
at least the following business activities energy sector relating to the foregoing
or assets: supply, distribution, and such powers, functions and responsibilities.
other services as the ERC may determine.
(o) It shall also be empowered to issue
(k) The ERC shall promulgate rules and such other rules that are essential in
regulations prescribing the qualifications the discharge of its functions as an
of Suppliers, which shall include among independent quasi-judicial body.
others their technical and financial
capability and credit worthiness. (p) All actions taken by the ERC pursuant to
the Act are subject to judicial review and
(l) The ERC shall determine the electricity the requirements of due process and the
End-users comprising the Contestable cardinal rights and principles applicable
and Captive Markets. The ERC shall to quasi-judicial bodies.
also seek to foster competition in credit,
collection and metering services in (q) The ERC may require reports or
Contestable Markets. It shall likewise documents from the Electric Power
license Suppliers to Contestable Markets. Industry Participants as necessary to
facilitate compliance with the Act, subject
(m) The ERC shall perform such other to appropriate measures to preserve
regulatory functions as are appropriate the confidentiality of proprietary or
and necessary in order to ensure commercially sensitive information.
the successful Restructuring and
modernization of the electric power (r) All notices of hearings to be conducted
industry, such as, but not limited to, by the ERC for the purpose of fixing rates
the rules and guidelines under which or fees shall be published at least twice
Generation Companies, Distribution for two (2) successive weeks in two (2)
Utilities, which are not publicly listed, newspapers of nationwide circulation.
shall offer and sell to the public a portion
not less than fifteen percent (15%) of (s) The ERC shall conduct rate application
their common shares of stocks: Provided, hearings in the locality where the
however, That Generation Companies, applicant is conducting its operations:
Distribution Utilities or their respective Provided, That this requirement shall not
holding companies that are already apply to applications filed pursuant to
listed in the Philippine Stock Exchange Section 36 of the Act.
(PSE) are deemed in compliance. For
existing companies, such public offering SEC. 5. Responsibilities of the PSALM.
shall be implemented not later than five
(5) years from the effectivity of the Act. (a) Consistent with Section 49 of the Act,
New companies shall implement their PSALM shall take ownership of all
respective public offerings not later than existing NPC generation assets, liabilities,
five (5) years from the issuance of their IPP contracts, real estate and all other
Certificate of Compliance (COC); disposable assets. All outstanding
obligations of NPC arising from loans,
issuances of bonds, securities and other by, or is under common Control with
instruments of indebtedness shall be another Person. Affiliates shall include a
transferred to and assumed by PSALM. subsidiary company and parent company
and subsidiaries, directly or indirectly, of
(b) The PSALM shall formulate and a common parent;
implement a program for the sale and
Privatization of the NPC assets and IPP (d) “Aggregator” refers to a Person or entity
contracts and the liquidation of NPC duly licensed by the ERC to engage in
Debts and Stranded Contract Costs in consolidating electric power demand of
accordance with the Act. End-users in a Contestable Market for
the purpose of purchasing and reselling
It shall calculate the amount of the electricity on a group basis;
Stranded Debts and Stranded Contract
Costs of NPC, which amount shall form (e) “Ancillary Services” refer to those
part of the Universal Charge to be services that are necessary to support the
determined, fixed, and approved by the transmission of capacity and energy from
ERC. resources to loads while maintaining
reliable operation of the transmission
(c) Pursuant to Section 60 of the Act, the system in accordance with good utility
PSALM shall assume all outstanding practice and the Grid Code to be adopted
financial obligations of ECs to NEA and in accordance with the Act;
other government agencies arising from
their respective Rural Electrification (f) “Bureau of Internal Revenue” or “BIR”
Program. refers to an attached agency of the
Department of Finance (DOF);
This shall be done in accordance with the
program duly approved by the President (g) “Board of Investments” or “BOI” refers
of the Philippines. to an attached agency of the Department
of Trade and Industry (DTI) created under
RULE 4. DEFINITION OF TERMS Republic Act No. 5186, as amended;

As used in these Rules, the following terms (h) “Bonafide Member” refers to a Person
shall have the following respective meanings: that has met all the requirements set
forth under the applicable EC by-laws and
(a) “Act” unless otherwise stated, refers to, has been enlisted as such, with voting
Republic Act No. 9136, otherwise known rights under the “one-man-one-vote”
as the “Electric Power Industry Reform cooperative principle;
Act of 2001”;
(i) “Build-Operate-Transfer” or “BOT”
(b) “Accredited Facility” refers to a facility shall have the meaning specified by
granted the certificate of accreditation by Republic Act No. 6957, as amended,
NPC or DOE pursuant to Executive Order otherwise known as “BOT Law” and its
No. 215 and its implementing rules and implementing rules and regulations;
regulations;
(j) “Buyer or Concessionaire” refers to
(c) “Affiliate” means any Person which, a qualified party awarded the sale
alone or together with any other Person, agreement or Concession Contract for
directly or indirectly, through one or more transmission assets;
intermediaries, Controls, is Controlled

(k) “Captive Market” refers to electricity (r) “Control” shall mean the power to direct
End-users who do not have the choice or cause the direction of the management
of a Supplier of electricity, as may be policies of a Person by contract, agency
determined by the ERC in accordance or otherwise;
with the Act;
(s) “Cooperative Development Authority”
(l) “Central Dispatch” refers to the process or “CDA” refers to an entity created
of issuing direct instructions to Electric under Republic Act No. 6939;
Power Industry Participants by the
grid operator to achieve the economic (t) “Corporation Code” refers to Batas
operation and maintenance of quality, Pambansa Bilang 68, otherwise known
stability, reliability and security of the as “The Corporation Code of the
transmission system; Philippines”;

(m) “Competition Rules” refer to the rules (u) “Demand Side Management” or “DSM”
promulgated by ERC to promote and refers to measures undertaken by
ensure competition in the electric power Distribution Utilities to encourage End-
industry pursuant to the Act and these users in the proper management of their
Rules; load to achieve efficiency in the utilization
of fixed infrastructures in the system;
(n) “Concession Contract” refers to the award
by the government to a qualified private (v) “Department of Budget and
entity of the responsibility for financing, Management” or “DBM” refers to the
operating, expanding, maintaining and government agency created pursuant to
managing specific Government-owned Executive Order No. 25, as amended;
transmission assets;
(w) “Department of Energy” or “DOE” refers
(o) “Condonation” refers to the setting aside to the government agency created
or suspension from the ECs’ books of pursuant to Republic Act No. 7638 whose
accounts of all their financial obligations expanded functions are provided in the
to NEA and other government agencies Act;
as a result of PSALM’s assumption of the
same, subject to their compliance with (x) “Department of Finance” or “DOF”
the Program approved by the President refers to the government agency created
of the Philippines; pursuant to Executive Order No. 127, as
amended;
(p) “Contestable Market” refers to the
electricity End-users who have a choice (y) “Distribution Code” refers to a
of a Supplier of electricity, as may be compilation of rules and regulations
determined by the ERC in accordance governing electric utilities in the operation
with the Act; and maintenance of their Distribution
Systems, which includes, among
(q) “Contiguous Area” refers to areas which others, the standards for service and
are within the same boundaries such as performance, and defines and establishes
subdivisions, villages, Economic Zones, the relationship of Distribution Systems
business districts and other similarly with facilities or installations of parties
situated End-users in which Supply of connected thereto;
Electricity can be measured through
metering devices; (z) “Distribution of Electricity” refers to
the conveyance of electric power from
transmission facilities or Embedded (ee) “Electric Cooperative” or “EC” refers
Generators to End-users by a Distribution to a Distribution Utility organized
Utility through its Distribution System pursuant to Presidential Decree No.
pursuant to the provisions of the Act and 269, as amended or as otherwise
these Rules; provided in the Act;

(aa) “Distribution System” refers to the (ff) “Electric Power Industry Participant”
system of wires and associated facilities refers to any Person or entity engaged
belonging to a franchised Distribution in the generation, transmission,
Utility extending between the distribution or Supply of Electricity;
delivery points on the transmission or
Subtransmission System or generator (gg) “Embedded Generators” refer to
connection and the point of connection generating units that are indirectly
to the premises of the End-user; connected to the Grid through
the Distribution Utilities’ lines or
(bb) “Distribution Wheeling Charge” refers industrial generation facilities that are
to the cost or charge regulated by synchronized with the Grid;
the ERC for the use of a Distribution
System and/or the availment of related (hh) “End-user” refers to any Person or
services; entity requiring the supply and delivery
of electricity for its own use;
(cc) “Distribution Utility” refers to any
EC, private corporation, government- (ii) “Energized Area” refers to a
owned utility or existing local geographical area enjoying dependable
government unit which has an exclusive and adequate electric service;
franchise to operate a Distribution
System in accordance with its franchise (jj) “Energy Regulatory Board” or “ERB”
and the Act; refers to the independent, quasi-
judicial regulatory body created under
(dd) “Economic Zones” or “EZs” refer Executive Order No. 172, as amended;
to selected areas which are being
developed into agro-industrial, (kk) “Energy Regulatory Commission” or
industrial, tourist, recreational, “ERC” refers to the regulatory agency
commercial, banking, investment and created by Section 38 of the Act;
financial centers. An EZ may refer to
any of the following: Industrial Estates (ll) “Financing for Rural Electrification”
(IEs), Export Processing Zones (EPZs), refers to those loans and grants
Free Trade Zones (FTZs), Information extended to ECs, for the construction
Technology Parks and Tourist/ or acquisition, operation and
Recreational Centers, such as those maintenance of distribution,
managed, administered, or operated generation, and subtransmission
by the Bases Conversion Development facilities for the purpose of supplying
Authority (BCDA), Cagayan Economic electric service, and those loans for the
Zone Authority (CEZA), Clark restoration, upgrading and expansion
Development Corporation (CDC), of such facilities, in areas which are
Philippine Economic Zone Authority considered rural at the time of the
(PEZA), Phividec Industrial Authority grant of such loans;
(PIA), and Zamboanga City Economic
Zone Authority (ZCEZA);

(mm) “Franchise Area” refers to a (tt) “Independent Power Producer” or
geographical area exclusively assigned “IPP” refers to an existing power
or granted to a Distribution Utility for generating entity which is not owned
Distribution of Electricity; by NPC as of the effectivity of the Act;

(nn) “Generation Company” refers to any (uu) “Inter-Class Cross Subsidy” refers to
Person or entity authorized by the an amount charged by Distribution
ERC to operate facilities used in the Utilities to industrial and commercial
Generation of Electricity; End-users as well as to other subsidizing
customer sectors in order to reduce
(oo) “Generation Facility” refers to a facility electricity rates of other customer
for the production of electricity; sectors such as the residential End-
users, hospitals, and streetlights;
(pp) “Generation of Electricity” refers
to the production of electricity by (vv) “Inter-Regional Grid Cross Subsidy”
a Generation Company or a co- refers to an amount embedded in the
generation facility pursuant to the electricity rates of NPC charged to its
provisions of the Act; customers located in a viable regional
grid in order to reduce the electricity
(qq) “Grid” refers to the high voltage rates in a less viable regional grid;
backbone system of interconnected
transmission lines, substations and (ww) “Intra-Regional Grid Cross Subsidy”
related facilities, located in each of refers to an amount embedded in
Luzon, Visayas and Mindanao, or as the electricity rates of NPC charged
may otherwise be determined by the to Distribution Utilities and non-
ERC in accordance with Section 45 of utilities with higher load factor and/or
the Act; delivery voltage in order to reduce the
electricity rates charged to Distribution
(rr) “Grid Code” refers to the set of rules Utilities with lower load factor and/or
and regulations governing the safe delivery voltage located in the same
and reliable operation, maintenance regional grid;
and development of the high voltage
backbone transmission system and its (xx) “IPP Administrator” refers to qualified
related facilities; independent entities appointed by
PSALM who shall administer, conserve
(ss) “Independent Market Operator” and manage the contracted energy
or “IMO” refers to a person who is output of NPC IPP contracts, including
financially and technically capable, selling the contracted energy output of
with proven experience and expertise these contracts and offering Ancillary
of not less than two (2) years as a Services, where applicable;
leading independent market operator
of similar or larger size electricity (yy) “Lifeline Rate” refers to the subsidized
markets endorsed jointly by the DOE rate given to Marginalized/low-income
and Electric Power Industry Participants Captive Market End-users who cannot
to assume the functions, assets and afford to pay at full cost;
liabilities from the Autonomous Group
Market Operator (AGMO), pursuant to (zz) “Marginalized End-users” refer to low-
Section 30 of the Act; income, captive, household electricity
consumers who cannot afford to pay

at full cost and have levels of electricity (ggg) “National Transmission Corporation”
consumption below a threshold level or “TRANSCO” refers to the corporation
to be determined by the ERC; organized pursuant to the Act to
acquire all the transmission assets of
(aaa) “Market Fees” refer to the charges the NPC;
imposed on all market members by
the Market Operator to cover the cost (hhh) “Open Access” refers to the system of
of administering and operating the allowing any qualified Person the use
WESM, as approved by the ERC; of transmission, and/or Distribution
System and associated facilities subject
(bbb) “Market Operator” refers to either the to the payment of transmission and/or
“Autonomous Group Market Operator” distribution retail wheeling rates duly
or “AGMO” constituted by the DOE approved by the ERC. For this purpose,
under Section 30 of the Act, with qualified Persons shall include all
equitable representation from Electric WESM Participants;
Power Industry Participants, initially
under the administrative supervision (iii) “Person” refers to a natural or juridical
of the TRANSCO, which shall assume person, as the case may be;
the functions, assets and liabilities of
the AGMO or the IMO, the entity jointly (jjj) “Philippine Energy Plan” or “PEP”
endorsed by the DOE and Electric refers to the overall energy program
Power Industry Participants to assume formulated and updated yearly by
the functions, assets and liabilities the DOE and submitted to Congress
from AGMO pursuant to Section 30 of pursuant to Republic Act No. 7638;
the Act;
(kkk) “Philippine Stock Exchange” or “PSE”
(ccc) “Merit Order Dispatch Instructions” refers to the corporate body duly
refer to the dispatch schedule that will organized and existing under Philippine
be submitted by the Market Operator law, licensed to operate as a securities
to the Grid/system operator for the exchange by the Securities and
purpose of providing Central Dispatch; Exchange Commission (SEC);

(ddd) “Missionary Electrification” refers to (lll) “Power Commission” refers to the
the provision of basic electricity service Joint Congressional Power Commission
in Unviable Areas with the ultimate created pursuant to Section 62 of the
aim of bringing the operations in these Act;
areas to viability levels;
(mmm) “Power Development Program”
(eee) “National Electrification or “PDP” refers to the indicative plan
Administration” or “NEA” refers for managing electricity demand
to the government agency created through energy efficient programs
under Presidential Decree No. 269, as and for the upgrading, expansion,
amended, with additional mandate set rehabilitation, repair and maintenance
forth in the Act; of power generation and transmission
facilities, formulated and updated
(fff) “National Power Corporation” or yearly by the DOE in coordination
“NPC” refers to the government with the generation, transmission and
corporation created under Republic Distribution Utility companies;
Act No. 6395, as amended;

(nnn) “Power Sector Assets and Liabilities (ttt) “Restructuring” refers to the process
Management Corporation” or of reorganizing the electric power
“PSALM Corp.” or “PSALM” refers to industry in order to introduce higher
the corporation created pursuant to efficiency, greater innovation and End-
Section 49 of the Act; user choice. It shall be understood
as covering a range of alternatives
(ooo) “Privatization” refers to the sale, enhancing exposure of the industry to
disposition, change and transfer competitive market forces;
of entire ownership and control of
all assets and IPP contracts from (uuu) “Retail Rate” refers to the total price
the Government or a government paid by End-users consisting of the
corporation to a private Person or charges for generation, transmission
entity; and related Ancillary Services,
distribution, supply and other related
(ppp) “Qualified Distribution Utilities” charges for electric service;
refer to Distribution Utilities that
are technically and financially (vvv) “Retail Competition” refers to the
capable of owning, operating, provision of electricity to a Contestable
maintaining, upgrading and expanding Market by Suppliers through Open
subtransmission facilities in accordance Access;
with the requirement of the Act;
(www) “Return-On-Rate-Base” or “RORB”
(qqq) “Referendum” refers to an electoral refers to the rate setting methodology
process which Bonafide Members of as determined by the ERC whereby
ECs register their respective vote on TRANSCO or its Buyer or Concessionaire
the issue of conversion, through secret and Distribution Utilities are allowed
balloting, in designated voting centers, to recover just and reasonable costs
the conduct of which shall be under and earn a reasonable return so as to
the supervision of NEA; enable such entities to operate viably;

(rrr) “Related Group” refers to a Person (xxx) “Rural Electrification” refers to the
and any business entity Controlled by delivery of basic electric services,
that Person, along with the Affiliates consisting of power generation,
of such business entity, and the subtransmission and/or extension of
directors and officers of the business associated power delivery system that
entity or its Affiliates, and relatives by would bring about important social and
consanguinity or affinity, legitimate or economic benefits to the countryside;
common law, within the fourth civil
degree, of the Person or any of the (yyy) “Rural Electrification Loan” refers to
foregoing directors or officers; financial obligations strictly incurred
for Rural Electrification;
(sss) “Renewable Energy Resources” refer
to energy resources that do not have an (zzz) “Rural Electrification Program”
upper limit on the total quantity to be refers to the National Government
used. Such resources are renewable on plan to achieve total electrification
a regular basis and the renewable rate of the countryside for the purpose of
is rapid enough to consider availability fostering economic development and
over an indefinite time. These include, uplifting the living standards of the
among others, biomass, solar, wind, Filipino people;
hydro and ocean energy;
(aaaa) “Self-Generation Facility” refers to cost of electricity under eligible
a power Generation Facility owned contracts of Distribution Utilities
and constructed by an End-user for over the actual selling price of the
such End-user’s own consumption contracted energy output of such
or internal use excluding Generation contracts that would be incurred
Facilities for use by households, upon Retail Competition and Open
clinics, hospitals and other medical Access. For this purpose, “eligible
facilities; contracts” are contracts which have
been approved by the ERB as of 31
(bbbb) “Small Power Utilities Group” or December 2000;
“SPUG” refers to the functional unit
of NPC created to pursue Missionary (gggg) “Stranded Contract Costs of NPC”
Electrification function; refer to the excess of the contracted
cost of electricity under eligible
(cccc) “Small Distribution Company” refers contracts of NPC over the actual
to a Distribution Utility whose peak selling price of the contracted energy
demand is equal to or less than ten output of such contracts in the
(10) megawatts; market. Such contracts shall have
been approved by the ERB as of 31
(dddd) “Stock Cooperative” refers to a duly- December 2000;
registered association of Persons
with a common bond of interest, (hhhh) “Stranded Debts of NPC” or
who have voluntarily joined together “Stranded Debts” refer to any
to achieve a lawful common social unpaid financial obligations of NPC
or economic end, making equitable which have not been liquidated by
contributions to the capital required the proceeds from the sales and
and accepting a fair share of the risks Privatization of NPC assets: Provided,
and benefits of the undertaking in however, That such obligations
accordance with the universally- include any of such obligations
accepted cooperative principles as refinanced by PSALM: Provided,
defined under Article 4, Chapter 1 further, That such refinancing of such
of Republic Act No. 6938, otherwise unpaid obligations shall not result
known as the “Cooperative Code of in increasing the Universal Charge
the Philippines;” burden;

(eeee) “Stock Corporation” refers to an (iiii) “Subtransmission Assets” refer
artificial being created by operation to the facilities related to the
of law with capital stock divided into power delivery service below the
shares and authorized to distribute transmission voltages and based
to its shareholders dividends out on the functional assignment of
of its surplus profits, having the assets including, but not limited
right of succession and the powers, to step-down transformers used
attributes and properties expressly solely by load customers, associated
authorized by law or incident to its switchyard/substation, control and
existence; protective equipment, reactive
compensation equipment to
(ffff) “Stranded Contract Costs of Eligible improve customer power factor,
Contracts of Distribution Utilities” overhead lines, and the land where
refer to the excess of the contracted such facilities/equipment are

located. These include NPC assets (qqqq) “Transmission of Electricity” refers
linking the transmission system and to the conveyance of electricity
the Distribution System which are through the high voltage backbone
neither classified as generation nor system;
transmission;
(rrrr) “Universal Charge” refers to the
(jjjj) “Subtransmission System” charge, if any, imposed for the
refers to systems comprised of recovery of the Stranded Debts,
Subtransmission Assets; Stranded Contract Costs of NPC, and
Stranded Contract Costs of Eligible
(kkkk) “Supplier” refers to any Person Contracts of Distribution Utilities and
licensed by the ERC to sell, broker, other purposes pursuant to Section
market or aggregate electricity to 34 of the Act;
End-users;
(ssss) “Unviable Area” refers to a
(llll) “Supplier’s Charge” refers to the geographical area within the
charge imposed by Suppliers for Franchise Area of a Distribution
the sale of electricity to End-users, Utility where immediate extension
excluding the charges for generation, of distribution line is not feasible;
transmission and distribution
wheeling; (tttt) “Wholesale Electricity Spot Market”
or “WESM” refers to the Wholesale
(mmmm) “Supply of Electricity” refers to the Electricity Spot Market to be created
sale of electricity by a party other in accordance with the Act;
than a Generation Company or a
Distribution Utility in the Franchise (uuuu) “WESM Participants” refer to all
Area of a Distribution Utility using Generation Companies, Distribution
the wires of such Distribution Utility; Utilities, Suppliers, Aggregators, End-
users, the TRANSCO or its Buyer or
(nnnn) “Technical Constraints” refer to line, Concessionaire, IPP Administrators,
equipment, and other limitations and other entities authorized by the
as defined in the WESM Rules, Grid ERC to participate in the WESM in
Code and Distribution Code; accordance with the Act; and
(oooo) “Transmission Charge” refers to the (vvvv) “WESM Rules” refer to the detailed
regulated cost or charges for the use rules that govern the administration
of a transmission system which may and operation of the WESM.
include the availment of Ancillary
Services; PART II – STRUCTURE AND OPERATION OF
THE ELECTRIC
(pppp) “Transmission Development Plan” POWER INDUSTRY
or “TDP” refers to the program for
managing the transmission system RULE 5. GENERATION SECTOR
through efficient planning for its
expansion, upgrading, rehabilitation, SECTION 1. Guiding Principle. –
repair and maintenance, to be
formulated by DOE and implemented Pursuant to Section 6 of the Act, generation
by the TRANSCO or its Buyer or of electric power, a business affected with
Concessionaire pursuant to the Act; public interest, shall be competitive and

open to all qualified Generation Companies. (v) Accredited facilities under BOT
Generation shall not be considered a public arrangement and other variant with
utility operation. For this purpose, any Person Distribution Utilities;
engaged or intending to engage in Generation
of Electricity shall not be required to secure a (vi) Facilities Owned or Operated by a
national franchise. Distribution Utility;

No Person may engage in the Generation (vii) Facilities under Contract with a
of Electricity as a new Generation Company Distribution Utility;
unless such Person has received a COC
from the ERC to operate facilities used in (viii) Self-Generation Facilities;
the Generation of Electricity. A Person that
demonstrates compliance with the standards (ix) Facility operating in EZs; and
and requirements of this Rule 5, and such
other terms and conditions as determined (x) Facility operating in isolated areas.
by the ERC to be appropriate to ensure that
Persons comply with all applicable legal and (b) Generation Facilities Under Construction.
regulatory requirements, shall be issued a
COC. Generation Facilities under construction
shall include:
SEC. 2. Scope of Application. –
(i) DOE-Accredited Facility under BOT
This Rule shall apply to all facilities used or arrangement and other variants
to be used for the Generation of Electricity, with NPC, SPUG, PNOC-EDC, NIA and
including but not limited to the following: other government agencies;

(a) Existing Generation Facilities. Existing (ii) DOE-Accredited Facility under BOT
Generation Facilities shall include: arrangement and other variants with
Distribution Utilities;
(i) Spin-off Facilities of NPC or their
transferees, including Generation (iii) Non DOE-Accredited Facility under
Facilities owned by NPC transferred contract with Distribution Utilities;
to PSALM and subsequently
privatized pursuant to the Act; (iv) Self-Generation Facility;

(ii) Agus and Pulangui Complexes; (v) Facility locating in EZs; and

(iii) Facilities owned and operated by (vi) Facility operating in isolated areas.
SPUG;
(c) New Generation Facilities
(iv) Accredited facilities under BOT
arrangement and other variants New Generation Facilities shall include:
with NPC, SPUG, National Irrigation
Administration (NIA), Philippine (i) Any newly-constructed facility with
National Oil Company-Energy appropriate health, safety and
Development Corporation (PNOC- environmental clearances connected
EDC) and other government to the Grid;
agencies;


(ii) Any facility currently under BOT and such other operating guidelines
arrangement and other variants as ERC may establish. The ERC shall
with NPC, SPUG, PNOC-EDC, establish and publish the standards and
other government agencies, and requirements for issuance of a COC.
government-owned and –controlled
corporations; and A COC shall be issued upon compliance
with such standards and requirements.
(iii Any facility that shall operate in an
isolated area. (i) A Person owning an existing
Generation Facility or a Generation
(d) This Rule shall also apply to the PSALM- Facility under construction, shall
appointed IPP Administrators. submit within ninety (90) days
from effectivity of these Rules to
SEC. 3. Ownership Limitation. – ERC, when applicable, a certificate
of DOE/NPC accreditation, a three
No Generation Company, Distribution Utility, (3) year operational history, a
or its respective subsidiary or Affiliate or general company profile and other
stockholder or official of a Generation information that ERC may require.
Company or Distribution Utility, or other Upon making a complete submission
entity engaged in generating and supplying to the ERC, such Person shall be
electricity specified by ERC within the fourth issued a COC by the ERC to operate
civil degree of consanguinity or affinity, such existing Generation Facility.
legitimate or common law, shall be allowed
to hold any interest, directly or indirectly, (ii) A Generation Facility which has been
in TRANSCO or its Buyer or Concessionaire. previously issued a COC shall not
Likewise, the TRANSCO or its Buyer or be required to secure a COC even if
Concessionaire or any of its stockholders or acquired by a new owner: Provided,
officials or any of their relatives within the That such new owner shall register
fourth civil degree of consanguinity or affinity, with ERC as specified above. Upon
legitimate or common law, shall not hold registration, such Person shall be
any interest, whether directly or indirectly, deemed authorized to operate such
in any Generation Company or Distribution Generation Facility.
Utility. Except for ex officio government-
appointed representatives, no Person who is (b) A Generation Company shall comply with
an officer or director of the TRANSCO or its the following operating standards:
Buyer or Concessionaire shall be an officer
or director of any Generation Company, (i) Technical Standards.
Distribution Utility or Supplier. This section
shall not apply to PSALM during the period A Generation Company shall ensure
that its generation assets are being privatized that all its facilities connected to
pursuant to Section 47 of the Act. the Grid meet the technical design
and operational criteria of the
SEC. 4. Obligations of a Generation Company. Grid Code and Distribution Code
– promulgated by ERC, Philippine
Electrical Code, and the TRANSCO
(a) A COC shall be secured from the ERC or its Buyer or Concessionaire
before commercial operation of a new including, among others, standards
Generation Facility. The COC shall for voltage fluctuation, frequency,
stipulate all obligations of a Generation harmonics, security, reliability,
Company consistent with this Section unplanned outages and provision of
Ancillary Services and shall operate charged by a Generation Company for
in accordance with such operational the Supply of Electricity shall be subject
criteria. to ERC regulation on the Retail Rates
charged by Distribution Utilities and
(ii) Financial Standards. transition supply contracts (TSCs) as
specified in Section 67 of the Act.
A Generation Company with
facilities connected to the Grid Upon introduction of Open Access and
shall conform to the financial Retail Competition or establishment of
standards provided in the Grid WESM, whichever comes first, the rates
Code. These standards shall take of a Generation Company shall not be
into consideration the nature subject to regulation by the ERC except
and function of a Generation as otherwise provided by the Act.
Facility. Furthermore, such
standards are set to ensure that However, for a Generation Company
the Generation Company meets operating a facility in SPUG areas and
the minimum financial standards isolated areas, the generation rates
to protect the public interest and for such facility shall be fixed and
any customer procuring services determined by ERC as set forth in Rule 13
from the said Generation on Missionary Electrification.
Company.
(f) A self-generation company not connected
(iii) Environmental Standards. to a Distribution Utility, unless otherwise
provided under these Rules, shall remit
A Generation Company shall directly to TRANSCO the corresponding
ensure that its facilities comply Universal Charge set by ERC. In
with applicable environmental relation to this, TRANSCO or its Buyer
laws, rules and regulations. or Concessionaire or the appropriate
Distribution Utility, when connected to
(c) A Generation Company operating a the self-generation company, shall have
Generation Facility in isolated areas access to the customer side of the meter
shall meet the technical and financial in order to determine the utilization of
standards to be issued by the ERC using such Generation Facility for the purpose
applicable and practicable criteria within of assessing the corresponding Universal
two (2) years, or such other period as Charge as provided in Rule 18 on
may be specified by the ERC, from the Universal Charge.
issuance of such technical and financial
standards. (g) A Generation Company shall comply with
Rule 29 on Benefits to Host Communities.
(d) A Generation Company shall structurally
and functionally unbundle its generation (h) Upon the establishment of the WESM
business activities and rates from its by the DOE, jointly with Electric Power
distribution and supply businesses as Industry Participants, a Generation
provided in Rule 10 on Structural and Company shall comply with the
Functional Unbundling of Electric Power membership criteria as prescribed under
Industry Participants and Rule 15 on the WESM Rules as set forth in Rule 9 on
Unbundling of Rates. WESM.

(e) Prior to the implementation of Open (i) Pursuant to Section 9 (e) of the Act,
Access and Retail Competition, the prices a Generation Company with facilities
connected to a Grid shall make Company. –
information available to the Market
Operator to enable the Market Operator (a) Subject to prior authorization from ERC,
to implement the appropriate dispatch TRANSCO or its Buyer or Concessionaire
scheduling and shall comply with the may allow a Generation Company to
said scheduling in accordance with the develop, own and/or operate dedicated
WESM Rules. A Generation Company point-to-point limited transmission
shall likewise make information available facilities: Provided, That:
to the grid operator to facilitate
Central Dispatch by the grid operator. (i) Such dedicated point-to-point limited
Subject to Technical Constraints, the transmission facilities are required
grid operator or the TRANSCO or its only for the purpose of connecting to
Buyer or Concessionaire shall provide the Grid which will be used solely by
Central Dispatch to a Generation Facility the Generation Facility, and are not
connected, directly or indirectly, to the used to serve End-users or Suppliers
transmission system in accordance with directly;
the dispatch schedule submitted by the
Market Operator, which schedule shall (ii) The facilities are included and
take into account outstanding bilateral consistent with the TDP as certified
contracts. by TRANSCO or its Buyer or
Concessionaire; and
(j) A Generation Company shall comply with
Rule 11 on Cross Ownership, Market (iii) Any other documents that may be
Abuse and Anti-Competitive Behavior. required by the ERC.

(k) A Generation Company that owns (b) In the event that such assets are required
a dedicated point-to-point limited for competitive purposes, ownership
transmission facility shall transfer of the same shall be transferred to the
ownership of such facility to the TRANSCO TRANSCO at a fair market price. In case
at a fair market price in the event that of disagreement on the fair market price,
such facility is required for competitive the ERC shall determine the fair market
purposes as prescribed in Section 5 (b) of value of such asset, either directly
this Rule. or through such dispute resolution
mechanisms as ERC may specify.
(l) A Generation Company shall submit to
DOE any information as may be required SEC. 6. Generation Charges and VAT. –
by the DOE for the preparation of the
PDP, subject to appropriate measures (a) Within ninety (90) days from the
to preserve the confidentiality of effectivity of these Rules, the ERC shall
proprietary or commercially sensitive issue guidelines for the regulation of
information. power sales by Generation Companies
applicable prior to the implementation
(m) A Generation Company that fails to of Retail Competition and Open Access
comply with any of these obligations, or establishment of WESM, whichever
including compliance with technical comes first.
standards, shall be subject to fines and
penalties as may be imposed by the ERC. (b) Pursuant to the policy of reducing
electricity rates to End-users, sales
SEC. 5. Dedicated Point-to-Point Limited of generated power by a Generation
Transmission Facility of a Generation Company shall, from the effectivity of
the Act, be zero-rated for the purpose to the transmission and Subtransmission
of imposition of value-added tax. Systems.
Towards this end, the imposition of zero
percent (0%) VAT shall apply to the sale The technical and functional criteria to be
of generated power by a Generation considered in distinguishing transmission
Company through all stages of sale until it assets from Subtransmission Assets shall
reaches the End-user. The DOF, through include, but not limited to:
the BIR, shall issue the necessary revenue
regulation within sixty (60) calendar days (a) Subtransmission Assets are normally in
from effectivity of these Rules. close proximity to retail customers;

RULE 6. TRANSMISSION SECTOR (b) Subtransmission Assets are primarily
radial in character;
SECTION 1. Guiding Principle. –
(c) Power flows into Subtransmission Assets;
The transmission of electric power is affected it rarely, if ever, flows out;
with public interest and shall be a regulated
common electricity carrier business, subject (d) When power enters Subtransmission
to the ratemaking powers of the ERC. Assets, it is not reconsigned or
transported on to some other market;
(e) Power entering Subtransmission Assets is
This Rule shall apply to TRANSCO or its Buyer consumed in a comparatively restricted
or Concessionaire and any other successor- geographic area;
in-interest thereto.
(f) Meters are based at the interface of
SEC. 3. Ownership Limitation. – transmission and Subtransmission
Assets to measure flows into the
The TRANSCO or its Buyer or Concessionaire Subtransmission Assets; and
or any of its stockholders, directors, officers
or any of their relatives within the fourth (g) Subtransmission Assets will be of reduced
civil degree of consanguinity or affinity, voltage.
legitimate or common law, shall not hold any
interest, whether directly or indirectly, in any SEC. 5. Initial Classification of Transmission
Generation Company, Distribution Utility, IPP Assets. –
Administrator and Supplier.
Pending the issuance of the new standards
SEC. 4. Separation Between Transmission and for classification of transmission assets by
Subtransmission. – ERC, transmission assets shall be defined as
follows:
The ERC shall set the standards of the
transmission voltages and other factors (a) For the Luzon Grid, transmission facilities
that shall distinguish transmission assets rated 230 kV and above shall generally be
from Subtransmission Assets. Towards this considered transmission assets;
end, ERC shall issue appropriate guidelines
to distinguish between these categories of (b) For the Visayas Grid, transmission
assets according to voltage level and function. facilities rated 69 kV and above shall
The ERC shall take into account the objective generally be considered transmission
of allowing nondiscriminatory Open Access assets;

(c) For the Mindanao Grid, transmission The performance indicators for reliability,
facilities rated 138 kV and above shall security, adequacy, integrity and stability
generally be considered transmission shall include but are not limited to the
assets; and following:

(d) Notwithstanding the foregoing (i) Number of Interruption Events;
provisions, any line at the specified
level for each Grid that serves an End- (ii) Sustained Average Interruption
user or customer shall be considered a Frequency Index;
subtransmission line, and any line below
the specified level for each Grid that (iii) Momentary Average Interruption
serves a transmission function shall be Frequency Index;
considered a transmission line.
(iv) Sustained Average Interruption
SEC. 6. Initial Classification of Subtransmission Duration Index;
Assets. –
(v) System Interruption Severity Index;
Step-down transformers used solely by load
customers are considered Subtransmission (vi) Frequency of tripping per 100 c-km;
Assets.
(vii) Average Forced Outage Duration;
In the case of step-down transformer banks
serving a single Distribution Utility, the (viii) Accumulated Time Error;
Distribution Utility or Distribution Utilities
shall have the option to purchase said facility, (ix) Frequency Limit Violation; and
provided, it will guarantee the reliable Supply
of Electricity to grid control equipment. (x) Voltage limit Violations.

SEC. 7. Functions and Responsibilities of (d) Improve and expand its transmission
TRANSCO or its Buyer or Concessionaire. – facilities, consistent with the TDP and the
Grid Code, to adequately serve Generation
The TRANSCO or its Buyer or Concessionaire Companies, Distribution Utilities and
shall have, among others, the following Suppliers requiring transmission service
functions and responsibilities: and/or Ancillary Services through the
transmission system.
(a) Act as the system operator of the
nationwide electrical transmission and TRANSCO or its Buyer or Concessionaire
Subtransmission System, transferred to it shall submit any plan for expansion or
by NPC; improvement of its facilities for approval
by the ERC; and
(b) Provide open and non-discriminatory
access to its system to all electricity users; (e) Provide Central Dispatch, through its grid
operator, to all Generation Facilities and
(c) Ensure and maintain the reliability, loads connected, directly or indirectly, to
adequacy, security, stability and integrity the transmission system in accordance
of the Grid in accordance with the with the dispatch schedule submitted by
performance standards for the operation the Market Operator, taking into account
and maintenance of the Grid, as set forth outstanding bilateral contracts and
in the Grid Code and the Distribution subject to Technical Constraints.
Code.
SEC. 8. Obligations of TRANSCO. – TRANSCO or its Buyer or Concessionaire shall
comply with the provisions of the Grid Code
The TRANSCO shall have, among others, the in the process of improving and expanding
following obligations: its transmission facilities in order to ensure
and maintain the reliability, adequacy,
(a) Prepare the TDP in consultation with security, stability and integrity of the Grid
Electric Power Industry Participants. and adequately serve Electric Power Industry
Participants requiring transmission service or
(b) Submit an updated TDP for approval to Ancillary Services through the Grid.
the DOE on a timely basis each year for
integration with the PDP and PEP. SEC. 10. Transmission Development Plan. –

(c) Remit its net profit, if any, to the PSALM (a) The TDP refers to a plan for managing the
not later than ninety (90) days after the transmission system through efficient
immediately preceding quarter subject to planning for expansion, upgrading,
annual reconciliation when the audited rehabilitation, repair and maintenance,
and certified annual financial statements to be prepared and implemented by
are finally made available. Net profit is TRANSCO or its Buyer or Concessionaire.
defined as:
(b) TRANSCO or its Buyer or Concessionaire
Net Profit = Total Utility Revenue – (Total shall be responsible for the preparation
Operating Expenses – Other Income + of the TDP, in consultation with the
Interest & Other Charges) Electric Power Industry Participants.
TRANSCO or its Buyer or Concessionaire
Net proceeds from the Privatization of shall submit the TDP for approval by DOE
TRANSCO shall be immediately remitted for integration into the PDP and PEP.
to PSALM.
(c) Any plan for expansion or improvement of
(d) TRANSCO shall secure approval of its transmission facilities shall be approved
Transmission Charges from the ERC by the ERC: Provided, That such approval
pursuant to Section 43 (f) of the Act. shall not be unreasonably withheld.

(e) TRANSCO shall sell its Subtransmission SEC. 11. TRANSCO Related Businesses. –
Assets to qualified Distribution Utilities
pursuant to the Act and, Part IV, Section The TRANSCO or its Buyer or Concessionaire
13 of Rule 22 on National Transmission shall be primarily responsible for maintaining
Corporation. In the event that a and operating the Grid pursuant to this Rule.
Distribution Utility is not qualified or
a qualified Distribution Utility refuses (a) TRANSCO or its Buyer or Concessionaire
to acquire such assets, then TRANSCO may engage in any related business which
shall be deemed in compliance with this maximizes utilization of its assets;
obligation.
(b) A portion of the annual net income
The Buyer or Concessionaire shall be of not more than fifty percent (50%)
responsible for the obligations under derived from such undertaking utilizing
Subsections (a), (b), and (d) hereof. assets which form part of the rate base
shall be used to reduce the transmission
SEC. 9. Compliance with Grid Code. – wheeling charges as determined by ERC;
and

(c) Separate audited accounts shall be (a) ECs;
maintained for each business undertaking
to ensure that the transmission business (b) Privately-Owned Distribution Utilities;
shall neither subsidize in any way such
business undertaking nor encumber its (c) Local Government Unit Owned-and-
transmission assets in any way to support Operated Distribution Systems;
such business.
(d) Entities duly authorized to operate within
SEC. 12. Transmission Charges. – the EZs; and

(a) Transmission Charges shall be paid to (e) Other duly authorized entities engaged in
TRANSCO or its Buyer or Concessionaire the Distribution of Electricity.
for the use of the transmission system.
Transmission users shall also pay charges SEC. 3. Ownership Limitation. –
for the use of Ancillary Services. The
WESM Rules shall provide for the (a) A Distribution Utility and any of its
methodology for the price and cost subsidiaries, Affiliates, stockholders,
recovery of Ancillary Services that are to directors, officers or their relatives within
be provided by the Generation Company. the fourth civil degree of consanguinity
or affinity, legitimate or common law,
(b) Transmission Charges and fees for shall not hold any interest, directly or
Ancillary Services shall be fixed by the indirectly, in the TRANSCO or its Buyer or
ERC. Concessionaire, or the IMO.

RULE 7. DISTRIBUTION SECTOR (b) The holdings of any Person, natural
or juridical, including its directors,
SECTION 1. Guiding Principles. – officers, stockholders, and their related
interests in a Distribution Utility and
(a) Pursuant to Section 22 of the Act, the their respective holding companies shall
Distribution of Electricity to End-users not exceed twenty-five percent (25%)
shall be a regulated common carrier of the total voting shares of stock. This
business, requiring a national franchise. shall not apply to a Distribution Utility
For purposes of these Rules, distribution or the company holding the shares or its
franchise shall mean the privilege of a controlling stockholders whose shares
Distribution Utility to convey electric are listed in the PSE. Implementation
power through its Distribution System of this provision shall be in accordance
in a given geographical area granted with the rules and regulations issued by
by the Congress of the Republic of the ERC. This section shall not apply to ECs in
Philippines. The Distribution of Electricity accordance with Section 28 of the Act.
is a business affected with public interest.
(c) A Distribution Utility shall be required
(b) The following rules shall apply to the to sell to the public a portion of not less
Distribution of Electricity. than fifteen percent (15%) of its common
shares of stock not later than five (5)
SEC. 2. Scope of Application. – years from the effectivity of the Act,
except those Distribution Utilities or its
This Rule shall apply to an entity that owns, respective holding companies listed in the
operates, or Controls one or more Distribution PSE, subject to the rules and regulations
Systems such as but not limited to: of the ERC to be issued for this purpose.

SEC. 4. Obligations of a Distribution Utility. – (ii) A Distribution Utility that does
not comply with the technical
(a) A Distribution Utility shall provide specifications, performance
distribution services and connections standards and financial capability
to its systems for any End-user within standards as prescribed in the
its Franchise Area consistent with the Distribution Code shall submit to
Distribution Code. Any existing End-user ERC a plan to comply within three
within the Franchise Area of a Distribution (3) years therewith. The ERC shall,
Utility that is connected to TRANSCO within sixty (60) days from receipt
facilities shall be served by the franchised of such plan, evaluate the same
Distribution Utility upon acquisition of and notify the Distribution Utility
the subtransmission facilities: Provided, concerned of its action.
however, That the Distribution Utility
which acquired the subtransmission (iii) A Distribution Utility is required
facilities shall be paid by the End-user to implement the ERC-approved
the corresponding subtransmission rates plan to comply with the said
or wheeling charge imposed by NPC in technical specifications prescribed
accordance with its contract to the End- in the Distribution Code and the
user as approved by ERC. performance standards of these
Rules within three (3) years from the
(b) A Distribution Utility shall structurally approval of said plan.
and functionally unbundle its distribution
business activities and rates from its (iv) Failure by the Distribution Utility to
wires, generation and supply businesses. submit a feasible and credible plan or
A Distribution Utility shall comply with failure to implement the same shall
Rule 10 on Structural and Functional serve as ground for the imposition
Unbundling of Electric Power Industry of appropriate sanctions, fines or
Participants. penalties as may be prescribed by
ERC.
(c) A Distribution Utility shall provide open
and non-discriminatory access to its (c) A Distribution Utility shall comply with
Distribution System to all End-users, the requirements in the Grid Code,
including Suppliers and Aggregators. WESM Rules and all applicable laws.

(d) A Distribution Utility shall comply with (d) A Distribution Utility shall provide
the technical specifications and financial universal service within its Franchise
standards prescribed in the Distribution Area, over a reasonable time, including
Code and the performance standards Unviable Areas, as part of its social
prescribed in these Rules. To this end, obligations. This obligation shall be
ERC shall issue submission requirements performed in a manner that shall allow
for Distribution Utilities to comply with such Distribution Utilities to collect
the technical specifications, financial different rates in Unviable Areas to
and the performance standards after sustain its economic viability, subject to
the effectivity of these Rules and the approval by the ERC.
Distribution Code.
(e) A Distribution Utility shall file with the ERC
(i) A Distribution Utility shall submit to its petition to allow another Distribution
ERC a statement of compliance. Utility to provide electricity to areas
that it does not find viable, pursuant to
Section 6 of this Rule.
(f) A Distribution Utility shall supply (n) A Distribution Utility shall prepare and
electricity in the least cost manner to the submit to the DOE an annual 5-year
Captive Market within its Franchise Area, distribution development plan not later
subject to the collection of Retail Rates than the fifteenth (15th) of March of
duly approved by ERC. every year, for integration with the PDP
and PEP. In the case of the ECs, such
(g) A Distribution Utility shall file for review plans shall be submitted through NEA for
and approval by the ERC its unbundled review and consolidation. To this end,
rates reflecting the true costs of service NEA shall submit to the DOE the National
pursuant to Rule 15 on Unbundling of Electric Cooperatives Distribution
Rates, and the proposal for the removal Development Plan not later than the
of cross subsidies among the customers 15th of March of every year.
it serves pursuant to Rule 16 on Removal
of Cross Subsidies. (o) A Distribution Utility shall pay a franchise
tax only on its distribution wheeling and
(h) A Distribution Utility shall file with the Captive Market supply revenues. To this
ERC its petition on the Lifeline Rate to end, the DOF shall issue the necessary
be applied to its Marginalized End-users, guidelines.
pursuant to Rule 20 on Lifeline Rate.
(p) A Distribution Utility shall comply with
(i) A Distribution Utility shall recover the reportorial requirements as may be
Stranded Contract Costs under eligible prescribed by the ERC and the DOE.
contracts approved by ERB as of 31
December 2000, subject to review by ERC (q) A Distribution Utility that fails to comply
pursuant to Rule 17 on Stranded Debts with any of these obligations shall be
and Contract Costs Recovery. subject to fines and penalties as imposed
by the ERC.
(j) A Distribution Utility shall collect on
a monthly basis from all Endusers a SEC. 5. Privileges of a Distribution Utility. –
Universal Charge set by ERC, to be
remitted to PSALM on or before the (a) A Distribution Utility shall be entitled to
fifteenth (15th) of the succeeding month, impose and collect Distribution Wheeling
net of any amount due to the Distribution Charges and connection fees, Retail
Utility. Rates and other charges as approved by
the ERC from the End-user and other
(k) A Distribution Utility shall identify qualified customers.
and segregate in its customer billing
statements the components of the Retail (b) A Distribution Utility may exercise the
Rate. power of eminent domain subject to the
requirements of the Constitution and
(l) A Distribution Utility shall comply with existing laws.
Rule 11 on Cross Ownership, Market
Abuse and Anti-Competitive Behavior. (c) A Distribution Utility may, directly or
indirectly, engage in any related business
(m) A Distribution Utility shall file for review undertaking that maximizes the utilization
and approval by the ERC any changes in of its assets: Provided, That quality of
the terms and conditions of services to its service shall not deteriorate pursuant to
Franchise Areas. the standards provided in the Grid Code
and Distribution Code and Rule 10 on

Structural and Functional Unbundling to Rule 14 on Provision of Electricity by
of Electric Power Industry Participants. Qualified Third Parties.
To this end, the Distribution Utility
shall submit to the ERC the appropriate SEC. 7. Structural and Operational Reforms
documents to effect the following: Between and Among Distribution Utilities. –

(i) A portion of the net annual income (a) Pursuant to Section 23 of the Act, the
derived from such undertaking ERC shall issue the appropriate guidelines
utilizing assets which form part of for the structural and operational
the rate base shall be used to reduce reforms of a Distribution Utility. Such
its Distribution Wheeling Charges: reforms shall include, but not limited, to
Provided, That, such portion shall merger, consolidation, integration, bulk
not exceed fifty percent (50%) of procurement and joint ventures.
the net income derived from such
undertaking. (b) With respect to ECs, the DOE through NEA
shall facilitate and encourage reforms
(ii) Separate accounts shall be in the structure and operations of a
maintained for each business Distribution Utility for greater efficiency
undertaking to ensure that the and lower costs.
distribution business shall neither
subsidize in any way such business (c) Pursuant to Section 57 of the Act, ECs are
undertaking nor encumber its given the option to convert into Stock
distribution assets in any way to Cooperatives under the CDA or Stock
support such business. Corporations under the Corporation
Code. Nothing contained in the Act
SEC. 6. Provision of Service in Unviable Areas. shall deprive ECs of any privilege or
– right granted to them under Section
39 of Presidential Decree No. 269, as
(a) Unenergized areas that a Distribution amended, and other existing laws. The
Utility does not find viable may be conversion and registration of ECs shall
transferred to another Distribution be implemented in the following manner:
Utility, if any is available, which will
provide the service, subject to approval (i) ECs shall, upon approval of a simple
by ERC. In cases where a Distribution majority of the required number
Utility failed or refused to service any of turnout of voters as provided
area within its Franchise Area and allows in the Guidelines in the Conduct
another utility to service the same, the of Referendum (Guidelines), in a
arrangements between the Distribution referendum conducted for such
Utilities shall not affect their respective purpose, be converted into a Stock
Franchise Areas. The ERC shall issue the Cooperative or Stock Corporation
appropriate guidelines to implement this and thereafter shall be governed
provision. by the Cooperative Code of the
Philippines or the Corporation Code,
(b) In remote and Unviable Areas where as the case may be. The NEA, within
the Distribution Utility is unable to serve six (6) months from the effectivity
for any reason as authorized by ERC in of these Rules, shall promulgate
accordance with the Act, the areas shall the guidelines in accordance with
be opened to other qualified third parties Section 5 of Presidential Decree No.
that may provide the service pursuant 1645.

(ii) ECs converted into Stock Corporations (b) The Supply of Electricity to End-users in
shall be registered with the SEC in Contestable Market requires a license
accordance with the Corporation from the ERC except for the Supply
Code, while those converted of Electricity by Distribution Utilities
into Stock Cooperatives, shall be within their Franchise Areas and Persons
registered with the CDA: Provided, authorized to supply electricity within
however, That the ECs which opt to their respective EZs.
remain as non-Stock Cooperatives
shall continue to be registered with SEC. 2. Scope of Application. –
the NEA and shall be governed by the
provisions of Presidential Decree No. (a) This Rule shall apply to all Suppliers.
269, as amended.
(b) Subject to the qualifications set by the
(iii) An EC heretofore converted, ERC, any of the following may obtain a
regardless of the corporate form, or license to become a Supplier:
its successor entity, shall retain its
franchise rights: Provided, further, (i) A Generation Company or Affiliate
That its operations shall be regulated thereof;
by the ERC and other Government
instrumentalities insofar as (ii) An Affiliate of a Distribution
practicable and consistent with the Utility with respect to the latter’s
Act. Contestable Market within or outside
its Franchise Area;
SEC. 8. Franchise for a Distribution Utility. –
(iii) Aggregators;
(a) Pursuant to Section 27 of the Act, a
franchise to a Person intending to engage (iv) An IPP Administrator; and
in Distribution of Electricity shall be
granted exclusively by the Congress of (v) Any other Person authorized by the
the Philippines. ERC to engage in the selling, brokering
or marketing of electricity to the
(b) All existing franchises shall be allowed to Contestable Market, consistent with
their full term. the Act and these Rules.

(c) In the case of ECs, renewals and SEC. 3. Ownership Limitation and Restrictions.
cancellations of franchise shall remain –
with the National Electrification
Commission (NEC) under the NEA for five (a) A Supplier or Affiliate thereof or any
(5) more years after the effectivity of the stockholder, director or officer or any
Act. of their relatives within the fourth civil
degree of consanguinity or affinity,
RULE 8. SUPPLY SECTOR legitimate or common law, shall not own
any interest, directly or indirectly, in
SECTION 1. Guiding Principles. – TRANSCO or its Buyer or Concessionaire,
or IMO.
(a) Pursuant to Section 29 of the Act, the
Supply of Electricity to Endusers is a (b) Except for ex-officio government-
business affected with public interest. appointed representatives, no Person
who is an officer or director of the

TRANSCO or its Buyer or Concessionaire (a) General Procedures for License
shall be an officer or director of any Applications and Monitoring.
Supplier.
(i) The applicant shall submit all
SEC. 4. Obligations of a Supplier. – pertinent information and documents
required by ERC for purposes of
(a) A Supplier shall secure a license from the evaluating the application for a
ERC prior to engaging in the Supply of license to supply electricity to End-
Electricity to End-users in any Contestable users in a Contestable Market.
Market.
(ii) Upon receipt of all the information
(b) A Supplier, where applicable, shall required to evaluate compliance
functionally and structurally unbundle with the requirements applicable
its supply business activities and rates to obtaining a license to supply
from its generation and distribution electricity to End-users in a
businesses, if any, as presented in Rule 10 Contestable Market, and upon
on Structural and Functional Unbundling demonstration of compliance with
of Electric Power Industry Participants. such requirements, the ERC shall
issue the necessary resolution, order,
(c) A Supplier shall identify and segregate the and/or the appropriate license as a
components of its Supplier’s Charge, as Supplier.
required by the Act and further provided
in Rule 15 on Unbundling of Rates. (iii) The ERC shall monitor the compliance
of Suppliers with the requirements
(d) A Supplier shall comply with the WESM of their respective licenses and the
Rules. rules and regulations applicable to
Suppliers.
(e) A Supplier shall comply with any
reportorial requirements prescribed by (b) Qualification Criteria
the ERC for monitoring purposes.
(i) Compliance with Section 3 of this
(f) A Supplier shall comply with the Rule 8.
Competition Rules to be prescribed by
the ERC concerning abuse of market (ii) Technical and Financial Standards,
power, cartelization, and any other anti- Creditworthiness Criteria and such
competitive or discriminatory behavior. financial security to secure proper
performance as a Supplier as may be
(g) A Supplier that fails to comply with any of determined by the ERC to protect the
these obligations shall be subject to fines interests of End-users in Contestable
and penalties imposed by the ERC and, as Markets.
so required to protect the public interest,
may have its license suspended, revised (iii) Such other qualification or criteria
or revoked. as may be determined by the ERC to
protect the public interest.
SEC. 5. Licensing of Suppliers. –
RULE 9. WHOLESALE ELECTRICITY SPOT
The ERC shall issue the appropriate licensing MARKET (WESM)
rules, guidelines and procedures for the
issuance of licenses to Suppliers, which shall SECTION 1. Guiding Principle. –
include but not limited to the following:
Pursuant to Section 30 of the Act, all WESM (f) Other similar Persons authorized by the
Participants shall comply with the WESM ERC eligible to become members of the
Rules. WESM.

SEC. 2. Scope of Application. – SEC. 5. The WESM Rules. –

This Rule shall apply to the Market Operator (a) The WESM Rules shall provide the
and all WESM Participants. mechanism for identifying and setting
the price of actual variations from the
SEC. 3. Organization. – quantities transacted under contracts
between sellers and purchasers of
Within one (1) year from the effectivity of electricity. The WESM Rules shall include
the Act, the DOE shall establish a WESM rules governing the central scheduling
composed of the WESM Participants. For this and dispatch, and settlement of quantities
purpose, the DOE shall, jointly with Electric sold and purchased under bilateral
Power Industry Participants, promulgate the contracts in order to identify variations
WESM Rules, and undertake actions including therefrom. The WESM Rules shall also
but not limited to the following: reflect accepted economic principles and
provide an open, competitive market for
(a) Organize and establish the appropriate all WESM Participants.
market design and governance structure
of the WESM; (b) Jointly with the Electric Power Industry
Participants, the DOE shall formulate
(b) Pursuant to Section 30 of the Act, the detailed rules for the WESM, in
constitute the AGMO, which shall accordance with the following principles:
undertake the preparatory work and
initial operation of the WESM; (i) Provide an efficient, competitive,
transparent and reliable spot market;
(c) Oversee the development of the WESM
organization and necessary supporting (ii) Ensure efficient operation of the
infrastructure, including the funding WESM by the Market Operator
requirements. in coordination with the system
operator in a way which:
SEC. 4. Membership. –
(1) Minimizes adverse impacts on
Subject to compliance with the membership system security;
criteria specified in the WESM Rules, the
following Persons shall be eligible to become (2) Encourages market participation;
members of the WESM: and

(a) Generation Companies; (3) Enables access to the market.

(b) Distribution Utilities; (iii) Subject to the provisions of Section
43 (u) of the Act, provide a cost-
(c) Suppliers; effective framework for resolution of
disputes among WESM Participants,
(d) IPP Administrators; and between WESM Participants and
the Market Operator;
(e) End-users; and

(iv) Provide for adequate sanctions in (a) A Market Operator in accordance with
cases of breaches of the WESM the WESM Rules shall implement the
Rules; and WESM. Not later than one (1) year
after the implementation of the WESM,
(v) Provide efficient, transparent and an independent entity, the IMO, shall
fair processes for amending the be formed and the functions, assets
WESM Rules. and liabilities of the AGMO shall be
transferred to such entity with the joint
(c) The WESM Rules shall provide, among endorsement of the DOE and the Electric
others, procedures for: Power Industry Participants: Provided,
That the IMO shall be financially and
(i) Establishing the Merit Order Dispatch technically capable, with proven
Instructions for each time period for experience and expertise of not less than
Central Dispatch; two (2) years as a leading independent
market operator of similar or larger size
(ii) Determining the market-clearing electricity market.
price for each time period;
(b) Subject to Technical Constraints, the grid
(iii) Administering the market, including operator of the TRANSCO or its Buyer
criteria for admission to and or Concessionaire shall provide Central
termination from the market which Dispatch of all Generation Facilities
includes security or performance connected, directly or indirectly, to the
bond requirements, voting rights transmission system in accordance with
of the participants, surveillance the dispatch schedule submitted by the
and assurance of compliance of the Market Operator, which schedule shall
participants with the rules and the take into account outstanding bilateral
formation of the WESM governing contracts.
body;
(c) The Market Operator shall have the
(iv) Prescribing guidelines for the market following functions and responsibilities:
operation in system emergencies;
(i) Operate and administer the WESM
(v) Amending the WESM Rules; and and allocate resources to enable it to
operate and administer the market,
(vi) Establishing the transition to full in accordance with the WESM Rules;
implementation of the WESM.
(ii) Determine the dispatch schedule of
(d) Methodology for Price Determination. all facilities in accordance with the
WESM Rules. Such schedule shall
The WESM Rules shall provide the be submitted to the grid operator
mechanism for determining the price of the TRANSCO or its Buyer or
of electricity not covered by bilateral Concessionaire;
contracts between sellers and purchasers
of electricity. The price determination (iii) Monitor daily trading activities in the
methodology contained in the WESM market;
Rules shall be subject to the approval of
the ERC. (iv) Oversee transaction billing and
settlement procedures; and
SEC. 6. The Market Operator. –

(v) Maintain and publish a register of all (c) Powers and Duties.
WESM Participants and must update
and publish the register whenever The following are the powers and duties
a Person becomes or ceases to be a of the AGMO governing body:
WESM Participant.
(i) Govern the operation of the WESM
SEC. 7. Constitution of the AGMO. – until the formation or the selection
of an IMO;
The DOE shall, within one (1) year from the
effectivity of the Act, constitute the AGMO (ii) Develop and adopt guidelines for the
which shall undertake the preparatory work efficient, competitive, transparent
and initial operation of the WESM. and reliable management and
operation of the market in
(a) AGMO Governing Board. accordance with WESM Rules;

The AGMO shall be governed, and (iii) Adopt and set internal procedures
its powers and functions exercised, for the conduct of meetings and
by a governing body with equitable determination of a quorum; and
representation from Electric Power
Industry Participants. The representatives (iv) Perform the preparatory work
of the AGMO governing body shall be (information technology system
selected, in accordance with the WESM development, testing, and trial
Rules. The DOE Secretary shall chair the operation) and initial operation of
AGMO. the WESM with support from the
DOE.
(b) Composition.
(d) Not later than one (1) year after the
Any sectoral representation on the implementation of the WESM, the AGMO
AGMO governing body should as far as shall transfer its functions, assets and
possible meet the following criteria: liabilities to the IMO.

(i) Representatives of each sector of the SEC. 8. Functions and Responsibilities of
Philippine electric power industry TRANSCO with respect to the WESM. –
on the governing body should be
reflective of that sector’s size in The TRANSCO shall provide administrative
relation to the electric industry as a supervision to AGMO.
whole;
SEC. 9. Market Fees. –
(ii) The number of representatives of
each sector of the Philippine electric (a) The cost of administering and operating
power industry should be such that the WESM shall be recovered by the IMO
no one sector of the industry can through a charge imposed on all WESM
dominate proceedings or decision- Participants or WESM transactions,
making by the governing body; provided such charge shall be filed with
and be selected in such a way that and approved by the ERC, consistent with
deadlocks in decision making will be the WESM Rules.
avoided; and
(b) The structure of Market Fees should be
(iii) There should be independent transparent and should not discriminate
members on the governing body. against a category or categories of WESM
Participants. SEC. 2. Scope of Application. –

(c) Upon the approval of ERC, the Market This Rule shall apply to all Electric Power
Operator shall publish the structure Industry Participants that are currently
of Market Fees, the methods used engaged or will be engaged in any of the
in determining the structure and an following business activities:
assessment of the extent to which the
structure complies with the principles (a) Power generation;
specified above, at least three (3) months
prior to the implementation of WESM. (b) Transmission;

SEC. 10. Market Suspension. – (c) Distribution;

In cases of national or international security (d) Supply of Electricity including collection
emergencies or natural calamities, the ERC is and metering;
empowered to suspend the operation of the
WESM or declare a temporary WESM failure (e) Related businesses which utilize the
in accordance with the procedures set out in generation, transmission, distribution or
the WESM Rules. supply assets for non-electricity related
services; and
RULE 10. STRUCTURAL AND FUNCTIONAL
UNBUNDLING OF ELECTRIC POWER (f) Other electricity related services that
INDUSTRY PARTICIPANTS may be identified and authorized by the
ERC.
SECTION 1. Guiding Principle. –
The ERC may relax or eliminate the unbundling
Consistent with the last paragraph of requirements for specified business activities
Section 36 of the Act, any Electric Power if such activity operates in a competitive
Industry Participant shall structurally and market.
functionally unbundle its business activities in
accordance with Section 5 of the Act, namely: SEC. 3. Procedures for the Structural and
generation, transmission, distribution and Functional Unbundling of Business Activities.
supply. Structural unbundling shall mean the –
separation of different activities through the
creation of separate divisions or departments The following shall govern all Electric Power
within a single company or, at the option of Industry Participants in undertaking the
any Electric Power Industry Participant, a structural and functional unbundling of its
separation into different juridical entities, business activities:
with a clear separation of accounts between
regulated and non-regulated business (a) An Electric Power Industry Participant
activities. Functional unbundling shall mean shall identify its business activities
the separation of functions into different according to each major business
components. For this purpose, business function as defined in Section 2 of this
activities resulting from the initial unbundling Rule.
process may be further unbundled to widen
the scope for competitive activities. The ERC (b) An Electric Power Industry Participant
shall formulate the appropriate guidelines shall prepare and submit for approval
and shall ensure full compliance with this by the ERC its Business Separation and
provision. Unbundling Plan (BSUP) on or before 31
December 2002.
(c) The BSUP shall contain among others, shall implement said decision fully and
the following information: promptly.

(i) A complete description of the (f) The ERC shall provide for appropriate
separation of books and records, fines and penalties for any Electric Power
including but not limited to, sources Industry Participant that fails to comply
of revenues, costs as allocated, asset with its decision in full.
transferred, and information systems
separation; SEC. 4. Guiding Principles for Business
Separation of Distribution Utilities. –
(ii) A comprehensive description of the
functional, structural or juridical (a) Once a Distribution Utility has separated
separation of generation, distribution and unbundled its business activities, the
and supply as provided for in the Distribution System portion of its business
BSUP; shall no longer provide competitive
energy services, i.e. generation and
(iii) Milestones and highlights of the supply.
planned structural and functional
unbundling of the business activities A Distribution Utility, which has not
in which the Electric Power Industry structurally and functionally unbundled
Participant is currently engaged: its business activities shall be prohibited
Provided, That in any case, no from operating in a Contestable Market.
Electric Power Industry Participant
that has not completed structural (b) ECs shall follow the structural and
and functional unbundling of functional unbundling procedures set
the business shall be eligible to forth in these Rules except that such
participate in Retail Competition and unbundling shall be implemented no
Open Access; later than 26 June 2006, the start of
Retail Competition and Open Access in
(iv) A plan for complying with all Code of the Franchise Areas of ECs.
Conduct provisions specified by ERC,
including training or developmental RULE 11. CROSS OWNERSHIP, MARKET
programs for its employees to help ABUSE AND ANTI-COMPETITIVE BEHAVIOR
ensure compliance; and
SECTION 1. General Principle. –
(v) Other documents or information as
may be required by the ERC. No Electric Power Industry Participant or
any other Person may engage in any anti-
(d) The ERC may adopt the Electric Power competitive behavior including, but not
Industry Participant’s BSUP, recommend limited to, crosssubsidization, price or market
modifications to the BSUP, or reject manipulation, false or deceptive marketing,
the BSUP for revision and direct the or other unfair trade practices detrimental
concerned Electric Power Industry to the encouragement and protection of
Participant to file a new BSUP based on Contestable Markets or the WESM.
its comments. In any case, ERC shall
render its decision within six (6) months SEC. 2. Scope of Application. –
from filing of the BSUP.
This Rule shall apply to all Persons, including
(e) Upon receipt of the ERC decision, the all Electric Power Industry Participants, such
Electric Power Industry Participant as but not limited to Generation Companies,
subsidiaries and Affiliates of Generation twenty-five percent (25%) of the national
Companies, stockholders and officials of installed generating capacity: Provided,
Generation Companies, IPP Administrators, That such restrictions shall not apply
Distribution Utilities, Suppliers, NPC, and the to PSALM or NPC during the time that
TRANSCO or its Buyer or Concessionaire. its assets are being privatized pursuant
to Section 47 of the Act and isolated
SEC. 3. Prohibition of Cross Ownership. – grids that are not connected to the high
voltage transmission system. The ERC
(a) Pursuant to Section 45 of the Act, no shall determine the installed generating
Generation Company, IPP Administrators, capacity in a Grid and the national
Distribution Utility or Supplier, their installed generating capacity.
respective subsidiaries, Affiliates,
stockholders, directors or officers or (b) The capacity of such facility shall be
other entity engaged in generating credited to the entity controlling the terms
and supplying electricity specified by and conditions of the prices or quantities
ERC, shall hold any interest, directly or of the output of such capacity sold in the
indirectly, in the TRANSCO or its Buyer or market in cases where different entities
Concessionaire, or the Market Operator. own the same Generation Facility.

(b) TRANSCO or its Buyer or Concessionaire In cases where different Persons own,
and any of its stockholders, directors or operate or Control the same Generation
officers or any of their relatives within the Facility, the capacity of such facility shall
fourth civil degree of consanguinity or be credited to the Person controlling the
affinity, legitimate or common law, shall capacity of the Generation Facility.
not hold any interest, whether directly or
indirectly, in any Generation Company, SEC. 5. Limits on Bilateral Supply Contracts by
IPP Administrators, Distribution Utility or a Distribution Utility. –
Supplier.
(a) A Distribution Utility may enter into
(c) Except for ex officio government- bilateral power supply contracts subject
appointed representatives, no Person to the provisions of Section 5 of Rule
who is an officer or director of the 30 on NPC Offer of Transition Supply
TRANSCO or its Buyer or Concessionaire Contracts and a review by the ERC:
shall be an officer or director of any Provided, That such review shall only be
Generation Company, IPP Administrators, required for a Distribution Utility whose
Distribution Utility or Supplier. level of Open Access has not reached
household demand level.
(d) This Section shall not apply to PSALM
in the course of its Privatization of NPC (b) No Distribution Utility shall be allowed
assets pursuant to Sec. 47 of the Act. to source from bilateral power supply
contracts more than fifty percent (50%)
SEC. 4. Limits on Concentration of Ownership, of its total demand from an Affiliate
Operation or Control of Installed Generating engaged in generation, but such limitation
Capacity. – shall not prejudice contracts entered into
prior to the effective date of the Act.
(a) No company, Related Group or IPP
Administrator, singly or in combination, This limitation shall apply regardless of
can own, operate or Control more than whether demand is expressed in terms of
thirty percent (30%) of the installed capacity or energy.
generating capacity of a Grid and/or
SEC. 6. Encouragement of Participation in the (d) ERC shall, motu proprio, monitor and
WESM. – penalize any market power abuse or anti-
competitive or unduly discriminatory
For the first five (5) years from the act or behavior, or any unfair trade
establishment of the WESM, no Distribution practice that distorts competition or
Utility shall source more than ninety percent harms consumers, by any Electric Power
(90%) of its total demand from bilateral Industry Participant. Upon a finding of a
power supply contracts. prima facie case that an Electric Power
Industry Participant has engaged in such
SEC. 7. ERC Responsibilities. – act or behavior, the ERC shall after due
notice and hearing, stop and redress
(a) ERC shall enforce the competitive the same. Such remedies shall, without
safeguards specified in this Rule in order limitation, include the separation of
to promote true market competition and the business activities of an Electric
prevent harmful monopoly and market Power Industry Participant into different
power abuse. However, ERC shall not juridical entities, the imposition of bid
apply the limitations specified in this Rule or price controls, issuance of injunctions
to isolated grids that are not connected in accordance with the Rules of Court,
to the Grid. divestment or disgorgement of excess
profits, and imposition of fines and
(b) ERC shall have the authority to determine penalties pursuant to Section 46 of the
the appropriate Grid or Grids to use in Act.
the application of this Rule when two
or more of the three separate Grids (e) ERC shall, within one (1) year from the
become sufficiently interconnected to effectivity of the Act, promulgate rules
constitute a single Grid or as conditions and regulations providing for a complaint
may otherwise permit. procedure that, without limitation,
provides the accused party with its rights
(c) ERC shall, within one (1) year from to due process.
the effectivity of the Act, promulgate
Competition Rules to ensure and SEC. 8. Anti-Competitive Behavior and Other
promote competition, encourage market Unfair Trade Practices. –
development and customer choice
and discourage or penalize abuse of The ERC shall promulgate Competition Rules
market power, cartelization and any prohibiting, and specifying appropriate
anticompetitive or discriminatory penalties and other remedies for, any
behavior, or unfair trade practice that contract, combination or conspiracy that
distorts competition or harms consumers. unreasonably restricts competition in any
Such Rules shall define relevant markets market for electricity, or any conduct that
for the purpose of establishing abuse or constitutes an abuse of market power or an
misuse of market power, areas of isolated attempted monopolization of any market for
grids that are not connected to the high electricity, including but not limited to the
voltage transmission system, and the following:
reportorial requirements of Electric
Power Industry Participants as may be (a) Fixing prices of products or services:
necessary to enforce the provisions of Electric Power Industry Participants that
Section 45 of the Act. are competitors shall not enter into any
agreement or understanding, tacit or
explicit, to fix, peg or stabilize the price

of any product or service. Price fixing but not limited to the following:
shall be deemed to include agreements
on bids, price floors, price ceilings, (i) A Distribution Utility or TRANSCO or
pricing formulas and resale prices, and its Buyer or Concessionaire refuses to
agreements on credit or any other terms interconnect Generation Company,
of a transaction between a buyer and a IPP Administrator, or Supplier other
seller. than for reasons of system security
or reliability or reasonable financial
(b) Fixing output of products or services: or credit considerations pursuant
Electric Power Industry Participants to the Grid or Distribution Codes
that are competitors shall not enter or commission of acts constituting
into any agreement or understanding, grounds for suspension of the
tacit or explicit, to fix, limit or otherwise service under any applicable rule and
determine their output of any product or regulation.
service.
(ii) A Distribution Utility or TRANSCO
(c) Customer, Product, Service or Territorial or its Buyer or Concessionaire
Divisions: Electric Power Industry gives a Generation Company,
Participants that are competitors IPP Administrator, or Supplier,
shall not enter into any agreement or including without limitation any of
understanding, tacit or explicit, as to the the Distribution Utility’s Affiliates,
customers or the geographic territories any preference or advantage over
they will serve, or the products or any other Generation Company,
services they will sell. IPP Administrator, or Supplier in
processing a request for Transmission
(d) Tying: Electric Power Industry or Distribution of Electricity.
Participants shall not use a position of
market power to condition the sale of (iii) A Distribution Utility or TRANSCO
one product or service on the purchase or its Buyer or Concessionaire
of another product or service. No gives a Generation Company,
Distribution Utility shall make access to IPP Administrator, or Supplier,
its Distribution System contingent upon including without limitation any of
the purchase of generation, metering, the Distribution Utility’s Affiliates,
billing or other services. any preference or advantage in
the dissemination or disclosure
(e) Physical or Economic Withholding: of customer or transmission or
Electric Power Industry Participants shall Distribution System information,
not use physical operating practices or and any such information that has
bidding strategies that limit the market not been made available to all
participation of a generation unit under Electric Power Industry Participants
conditions that will result in significant at the same time and in a non-
increases in market prices. discriminatory manner.

(f) Discriminatory provision of regulated (iv) A Distribution Utility or TRANSCO or
distribution or transmission services: its Buyer or Concessionaire provides
Regulated distribution and transmission any preference or advantage to
services shall be provided on a basis that any Supplier in the disclosure of
is not unduly discriminatory. Examples of information about operational status
unduly discriminatory behavior include, and availability of the Distribution
System and transmission system.
(v) A Distribution Utility does not provide (c) Distribution Utilities;
all regulated services, and does not
apply Distribution Wheeling Charges (d) EZs;
to any Supplier that is not an Affiliate,
in the same manner as it does for (e) Suppliers;
itself or its Affiliates. TRANSCO or its
Buyer or Concessionaire shall provide (f) IPP Administrators;
all regulated services and shall apply
Transmission Charges to any Electric (g) Market Operator; and
Power Industry Participant in the
same manner as it does for PSALM (h) End-users in Contestable Markets.
or NPC.
SEC. 3. Conditions for Declaring Initial
(g) Misrepresentation or false advertising of Implementation of Open Access. –
a Distribution Utility: A Distribution Utility
or its Affiliate shall not state or imply that The ERC shall, after due notice and public
any distribution service provided to an hearing, declare initial implementation of
Affiliate is inherently superior, solely on Open Access not later than three (3) years
the basis of Affiliate’s relationship with from the effectivity of the Act, subject to the
the Distribution Utility, to that provided following conditions:
to any other Supplier.
(a) Establishment of the WESM.
(h) Cross-Subsidization: Consistent with
Section 26 of the Act, a Distribution Utility For this purpose, the “establishment”
shall not use its revenues or resources of the WESM shall be deemed to have
from regulated distribution services to occurred upon the effectivity of the
reduce the cost or price of its competitive Market Rules by the DOE and initial
services (generation or supply). operation of the AGMO pursuant to
Rule 9 on the Wholesale Electricity Spot
RULE 12. RETAIL COMPETITION AND OPEN Market (WESM).
ACCESS
(b) Approval of unbundled Transmission and
SECTION 1. Guiding Principle. – Distribution Wheeling Charges.

Pursuant to Section 31 of the Act, Retail The ERC shall approve the unbundled
Competition and Open Access shall be rates of NPC and Distribution Utilities,
implemented no later than three (3) years which shall include the transmission and
from the effectivity of the Act. wheeling charges, within one (1) year
from the effectivity of the Act.
(c) Initial implementation of the Cross
The provision of open and non-discriminatory Subsidy Removal scheme.
access to the transmission system and
Distribution Systems shall apply to the For this purpose, initial implementation
following: of the cross subsidy removal scheme shall
occur on the next billing period after the
(a) WESM Participants; issuance of ERC approval. The scheme
for cross subsidy removal shall include
(b) TRANSCO or its Buyer or Concessionaire; guidelines or a schedule for the removal
of each type of cross subsidy and may be
altered, modified and/or amended by (b) The Missionary Electrification function of
the ERC pursuant to Rule 16 on Removal SPUG shall be funded from the revenues
of Cross Subsidies. from sales in the missionary areas
and from the Universal Charge to be
(d) Privatization of at least seventy (70%) collected from all electricity End-users as
percent of the total capacity of generating determined by the ERC.
assets of NPC in Luzon and Visayas.
(c) The DOE’s Missionary Electrification
(e) Transfer of the management and control Development Plan (MEDP) shall include
of at least seventy percent (70%) of the capital investment and operations
total energy output of power plants regarding capacity additions in existing
under contract with NPC to the IPP missionary areas and the facilities to be
Administrators. provided in other areas not connected to
the transmission system.
SEC. 4. Specification of the Contestable
Market for Open Access. – (d) The DOE shall, no later than ninety (90)
days from the promulgation of these
Upon the initial implementation of Open Rules, issue specific guidelines on how
Access, the ERC shall allow all electricity End- to encourage the inflow of private
users with a monthly average peak demand capital and the manner whereby other
of at least one megawatt (1 MW) for the parties, including Distribution Utilities
preceding twelve (12) months to be the and qualified third parties, as provided
Contestable Market. Two (2) years thereafter, for in Section 23 and Section 59 of the
the threshold level for the Contestable Market Act, can participate in the Missionary
shall be reduced to seven hundred fifty Electrification projects set forth in the
kilowatts (750 kW). At this level, Aggregators MEDP.
shall be allowed to supply electricity to End-
users whose aggregate monthly average (e) The SPUG shall continue to endeavor to
peak demand within a Contiguous Area is at privatize its power generation facilities
least seven hundred fifty kilowatts (750 kW). and the necessary associated power
Subsequently and every year thereafter, the delivery systems.
ERC shall evaluate the performance of the
market. On the basis of such evaluation, it SEC. 2. Scope of Application. –
shall gradually reduce the threshold level
until it reaches the household demand level. This Rule shall apply to all entities and areas
In the case of ECs, Retail Competition and identified in the MEDP.
Open Access shall be implemented not earlier
than five (5) years from the effectivity of the SEC. 3. Obligations of SPUG. –
Act.
(a) SPUG shall be responsible for providing
RULE 13. MISSIONARY ELECTRIFICATION power generation and its associated
power delivery systems in areas that are
SECTION 1. Guiding Principle. – not connected to the Grid and cannot
be serviced by Distribution Utilities and
(a) Pursuant to Section 70 of the Act, the other qualified third parties.
SPUG shall be responsible for providing
power generation and its associated (b) SPUG shall periodically assess the
power delivery systems in areas that requirements and prospects for bringing
are not connected to the transmission its functions to commercial viability on an
system. area-by-area basis at the earliest possible
time, including a program to encourage SEC. 5. Reliability Improvement. –
private sector participation.
(a) To improve systems reliability, the SPUG
(c) Whenever feasible, SPUG shall utilize shall install transmission systems in all
Renewable Energy Resources. qualified areas under the coverage of
SPUG. Priority will be given to areas
(d) SPUG shall file for review and approval showing big growth in its electricity
its unbundled rates following Rule 15 on demand.
Unbundling of Rates.
(b) SPUG shall also collect revenues in
(e) SPUG shall file a petition to the ERC with providing power delivery and Ancillary
respect to the Missionary Electrification Service to Generation Companies or
portion of the Universal Charge as Distribution Utilities at a rate to be
prescribed in Rule 18 on Universal filed with and approved by ERC. In the
Charge. absence of such rate, SPUG shall use the
applicable major Grids’ rate.
(f) PSALM shall ensure that SPUG conducts
proper monitoring, accounting and (c) SPUG shall cease providing Missionary
control of expenditures, and efficient Electrification to areas interconnected to
utilization of the Missionary Electrification the transmission system.
funds from the Universal Charge.
RULE 14. PROVISION OF ELECTRICITY BY
SEC. 4. Source of Funds. – QUALIFIED THIRD PARTIES

(a) The Missionary Electrification shall be SECTION 1. Guiding Principle. –
funded from the revenues from sales in
missionary areas and from its appropriate Pursuant to Section 59 of the Act, the
share in the Universal Charge. provision of electric service in remote and
Unviable Areas that the Distribution Utility
(b) SPUG may also draw on other funding is unable to service for any reason shall be
sources including appropriations from opened to other qualified third parties. The
Congress, the utilization of private provision of electricity in Unviable Areas by
capital, multilateral aids or grants, Official qualified third parties shall be a regulated
Development Assistance (ODA) Funds business.
and others.
(c) SPUG shall source all the cost differentials
between the sales revenues and This Rule shall apply to third parties qualified
operating expense and capital expense and authorized by ERC in accordance with
for expansion, rehabilitation and facilities the Act to undertake the provision of electric
for new areas of development based service in remote and Unviable Areas that a
on the approved MEDP from its share Distribution Utility is unable to serve.
from the Universal Charge and/or other
sources as it may obtain. SEC. 3. Determination of Remote and
Unviable Areas. –
(d) In accordance with DOE’s MEDP, the
proposed five- (5) year annual budget Every September, the DOE shall issue a
for operating and capital expenditures of declaration of all the remote and Unviable
SPUG shall be submitted to ERC. Areas that cannot be served by a Distribution
Utility within the following three (3) years.
The declaration shall be consistent with the SEC. 6. Obligations of the ERC. –
PDP and made in consultation with the NEA
and Distribution Utilities. The remote and (a) The ERC shall set guidelines for the
Unviable Areas specified in the declaration issuance of permits to qualified third
shall be open for participation by qualified parties that serve a remote or unserved
third parties. and Unviable Area within the Distribution
Utility’s Franchise Area.
SEC. 4. Determination of Qualified Third
Parties. – (b) The ERC shall set the rules in computing
rates that allow full cost recovery of the
The DOE shall set criteria for determining Generation Facilities and delivery systems
qualified third parties that may participate in built to serve remote or unserved and
providing electricity to remote and Unviable Unviable Areas.
Areas. These criteria may include financial,
technical, environmental, and other indices PART III – ELECTRICITY RATE AND CHARGES
of performance.
RULE 15. UNBUNDLING OF RATES
The criteria shall give preference to parties
that would utilize least-cost new Renewable SECTION 1. Guiding Principle. –
Energy Resources in providing electricity.
Consistent with Section 36 of the Act and Rule
SEC. 5. Rights and Obligations of Qualified 10 on Structural and Functional Unbundling of
Third Parties. – Electric Power Industry Participants, this Rule
on the Unbundling of Rates shall result in the
(a) Any Distribution Utility that fails to identification and separation of the individual
provide electricity to an Unviable Area charge for providing a specific electric service
shall be required by the ERC to enter into to any End-user for generation, transmission,
a contract with a qualified third party distribution, and supply.
to provide electric service in such an
Unviable Area. SEC. 2. Scope of Application. –

(b) A qualified third party shall comply with all This Rule shall apply to all Electric Power
applicable provisions of the Distribution Industry Participants that are currently
Code, including the requirement to engaged or will be engaged in any of the
obtain a COC for its Generation Facilities business activities as stated in Section 5 of
and other permits the ERC may require. the Act.

(c) A qualified third party shall charge rates SEC. 3. Parameters for Unbundling Rates and
in Unviable Areas according to ERC rules Costs of Service.
for cost recovery of Generation Facilities
and associated power delivery systems. (a) An Electric Power Industry Participant
shall identify, separate and unbundle its
(d) A qualified third party shall submit rates, charges, and costs in accordance
annual financial statements to ERC for with Rule 10 on Structural and Functional
determining the effectiveness of the Unbundling of Electric Power Industry
approved rate. Participants.

(e) A qualified third party shall report (b) In the determination of eligible costs of
annually to DOE the rate of electrification service to be charged to the End-users,
of its coverage areas. the ERC shall establish the minimum
efficiency standards covering the The ERC may adopt alternative forms
technical, financial, and customer service of internationally-accepted rate-setting
performance criteria including systems methodology as it may deem appropriate.
losses, and interruption frequency rates The rate-setting methodology so adopted
parameters among others. and applied must ensure a reasonable
price of electricity. The rates prescribed
(c) The rate base of the TRANSCO or its Buyer shall be non-discriminatory and shall take
or Concessionaire or any Distribution into consideration, among others, the
Utility shall exclude management franchise tax. To achieve this objective
inefficiencies, such as but not limited and to ensure the complete removal of
to cost of project delays not due to any cross subsidies, the cap on the recoverable
force majeure, and penalties and related rate of system losses prescribed in
interest during construction and other Section 10 of Republic Act No. 7832, is
disallowances to be determined by ERC. hereby amended and shall be replaced
by caps which shall be determined by
(d) Interest expenses shall not be allowed as the ERC based on load density, sales
deductions from permissible Return on mix, cost of service, delivery voltage and
Rate Base (RORB). other technical considerations it may
promulgate. The ERC shall determine
(e) TRANSCO or its Buyer or Concessionaire such form of rate-setting methodology,
and Distribution Utilities may directly or which shall promote efficiency. In case
indirectly engage in any related business the rate setting methodology used is
which maximizes the utilization of their RORB, it shall be subject to the following
assets. guidelines:

SEC. 4. Method of Rate Unbundling. – (i) For purposes of determining the rate
base, the TRANSCO or its Buyer or
The ERC shall prescribe the methodology for Concessionaire or any Distribution
rate unbundling. Utility may be allowed to revalue
its eligible assets not more than
SEC. 5. Ratemaking Design and Methodology. once every three (3) years by an
– independent appraisal company:
Provided, however, That ERC may
(a) The ERC shall, in the public interest, give an exemption in case of unusual
establish and enforce a methodology devaluation: Provided, further,
for setting transmission and distribution That the ERC shall exert efforts to
wheeling rates and Retail Rates for minimize price shocks in order to
the Captive Market of a Distribution protect the consumers;
Utility, taking into account all relevant
considerations, including the efficiency (ii) Interest expenses are not allowable
or inefficiency of the regulated entities, deductions from permissible RORB;
as well as the expansion or improvement
of the Transmission facilities pursuant to (iii) In determining eligible cost of
a plan approved by the ERC under Section services that will be passed on to the
10 of Rule 6 on Transmission Sector, and End-users, the ERC shall establish
the Distribution Utilities under Rule 7 on minimum efficiency performance
Distribution Sector. The rates must be standards for the TRANSCO or
such as to allow the recovery of just and its Buyer or Concessionaire and
reasonable costs and a reasonable RORB Distribution Utilities including
to enable the entity to operate viably. systems losses, interruption
frequency rates, and collection (c) In the case of isolated, remote and
efficiency; Unviable Areas serviced by a qualified
third party as defined in Rule 14 on
(iv) Further, in determining rate base, Provision of Electricity by Qualified Third
the TRANSCO or its Buyer or Parties, the ERC shall set the rules for
Concessionaire or any Distribution rates computation and determination.
Utility shall not be allowed to include
management inefficiencies like (d) The ERC shall recognize the different cost
cost of project delays not excused structures in serving isolated areas.
by force majeure, penalties and
related interest during construction SEC. 6. Unbundled Rate Filing Requirements.
applicable to these unexcused –
delays;
(a) As required by the Act, NPC and
(v) Any significant operating costs or Distribution Utilities shall file within six
project investments of the TRANSCO (6) months from the effectivity of the
or its Buyer or Concessionaire and Act for revised rates with costs and other
Distribution Utilities which shall relevant accounts unbundled by business
become part of the rate base shall activity.
be subject to verification by the
ERC to ensure that the contracting (b) The ERC shall within six (6) months from
and procurement of the equipment, the date of submission of revised rates
assets and services have been by the Distribution Utility, notify the
subjected to transparent and Distribution Utility of the action taken on
accepted industry procurement and the application.
purchasing practices to protect the
public interest; and (c) The rate filing petition shall commence
with the unbundling the cost
(vi) The interest incurred during components of the historical test year
construction may be capitalized costs, from which the new Retail Rates
and included in the rate base upon and unbundled rates or charges are to
commissioning of the asset. be developed. The historical test year,
for this purpose, shall be the twelve (12)
(b) The Retail Rates charged by Distribution months ending 31 December 2000.
Utilities for the Supply of Electricity in
their Captive Market shall be subject (d) Each rate filing petition for unbundled
to regulation by the ERC based on the cost of service shall contain detailed
principle of full recovery of prudent and schedules, data, and other relevant
reasonable economic costs incurred, or information deemed necessary by the
such other principles that will promote ERC.
efficiency as may be determined by the
ERC. RULE 16. REMOVAL OF CROSS SUBSIDIES

Every Distribution Utility or Supplier to SECTION 1. Guiding Principle. –
the Contestable Market, whichever is
applicable, shall identify and segregate Pursuant to Section 74 of the Act, cross
in its bills to Endusers the components subsidies within a Grid, between Grids, and/
of the Retail Rate as follows: generation, or classes of customers shall be phased out in
transmission, distribution, supply and a period not exceeding three (3) years from
other related charges for electric service. the establishment by the ERC of a Universal
Charge which shall be collected from all (i) The total revenues that would have
electricity End-users. Such level of cross been collected from a customer class
subsidies shall be made transparent and under the rates in effect during a
identified separately in the billing statements historical test year that is adjusted
provided to End-users by the Suppliers. for differences between actual and
forecast consumption and other
SEC. 2. Scope of Application. – factors as ERC may specify; and

This Rule shall apply to NPC, TRANSCO or its (ii) The total unbundled true cost of
Buyer or Concessionaire, Distribution Utilities service for the same customer class
and PSALM. as submitted in accordance with
Rule 15 on Unbundling of Rates and
SEC. 3. Calculation of Cross Subsidies. – the rate filing requirements that ERC
may issue pursuant to Rule 15, using
(a) The ERC may extend the period for the the same historical test year.
removal of cross subsidies for a maximum
period of one (1) year upon finding that (d) The cross subsidy between customer
cessation of such mechanism would have classes within each Distribution Utility
a material adverse effect upon the public shall be calculated on a net basis for
interest, particularly the residential each customer class as the difference
End-user; or would have an immediate, between:
irreparable, and adverse financial effect
on Distribution Utility. (i) The total revenues that would have
been collected from a customer class
(b) The cross subsidy between Grids in the under the rates in effect during a
rates of NPC shall be calculated on a historical test year that is adjusted
net basis for each Grid as the difference for differences between actual and
between: forecast consumption and other
factors as ERC may specify; and
(i) The total revenues that would have
been collected on the Grid under the (ii) The total unbundled true cost of
rates in effect during a historical test service for the customer class as
year that is adjusted for differences submitted in accordance with Rule
between actual and forecast 15 on Unbundling of Rates and the
consumption and other factors as rate filing requirements that ERC
ERC may specify; and may issue using the same test year.

(ii) The total unbundled true cost of SEC. 4. Procedures for Handling Cross
service on the Grid as submitted Subsidies. –
in accordance with Rule 15 on
Unbundling of Rates and the rate (a) Pending the complete removal of cross
filing requirements that the ERC may subsidies, each subsidy rate level shall
issue pursuant to Rule 15, using the be shown as a separate item in customer
same historical test year. billing statements.

(c) The cross subsidy within each Grid in the (b) The ERC shall establish a cross subsidy
rates of NPC shall be calculated on a net charge to account for all forms of cross
basis for each customer class within the subsidies that remain during the phase
Grid as the difference between: out period as described in Section 5 of this
Rule, to be recovered from all electricity
End-users through the Universal Charge under this provision.
pursuant to Rule 18 on the Universal
Charge. (e) If ERC does not extend the period for
removal of cross subsidies, the cross
SEC. 5. Scheme for Phasing Out Cross subsidies between regions, within
Subsidies. – regions, and between customer classes
shall cease to exist at the end of the three
(a) The ERC shall issue a scheme for phasing (3) year period from the establishment of
out all cross subsidies, including subsidies the Universal Charge.
within Grids, between Grids, and between
classes of customers. The phasing out SEC. 6. Exemption from Cross Subsidy
period shall not exceed three (3) years Removal for Distribution Utilities. –
from the establishment of the Universal
Charge pursuant to Rule 18 on Universal The threshold consumption levels and the
Charge. The initial implementation of Lifeline Rates determined by the ERC shall
the phase out scheme shall occur on the be exempted from the prohibition on cross
next billing period after issuance of ERC subsidies between classes of customers of
approval. a Distribution Utility for a period of ten (10)
years, unless extended by law.
(b) The phase out scheme shall be designed
to mitigate the effects of the removal RULE 17. STRANDED DEBTS
of the cross subsidies. The ERC shall AND CONTRACT COSTS RECOVERY
determine which Endusers shall continue
to receive subsidies and the level of SECTION 1. Guiding Principle. –
subsidies such End-users shall receive
during the phase out period. Pursuant to Sections 32 and 33 of the Act,
there are three (3) types of stranded costs
(c) Together with their filings of unbundled recoverable through the Universal Charge:
rates reflecting the true costs of service,
pursuant to Rule 15 on Unbundling of (a) Stranded Debts;
Rates, NPC and the Distribution Utilities
shall file with ERC their proposals for the (b) Stranded Contract Costs of NPC; and
removal of cross subsidies among the
End-users they serve to be considered by (c) Stranded Contract Costs of Eligible
ERC in the formulation of the phase out Contracts of Distribution Utilities.
scheme.
SEC. 2. Scope of the Application. –
(d) The ERC may extend the period for
the removal of cross subsidies for a This Rule shall apply to NPC, PSALM and
maximum period of one (1) year upon Distribution Utilities with IPP contracts
finding that cessation of such mechanism approved by the ERB as of 31 December 2000.
would have a material adverse effect
upon the public interest, particularly SEC. 3. Procedures and Methodology for
the residential End-user; or would have Stranded Cost Determination. –
an immediate, irreparable, and adverse
financial effect on a Distribution Utility. (a) PSALM and any Distribution Utility that
Distribution Utilities shall submit to ERC has an eligible contract shall file with
such information as ERC may specify to ERC their respective petitions for cost
help it determine if the cross subsidy recovery under the Universal Charge
removal mechanism should be extended and include therewith the methodology
in determining stranded costs. The ERC the ERC and reviewed by the same
shall review the methodology submitted body annually. In determining the
by PSALM and such Distribution Utility to amount of Stranded Contract Costs
determine, fix, and approve the level of of NPC, PSALM may include in such
stranded costs. calculation the principal amount
and interest expenses of any such
(b) At the end of the first year of the debt raised by PSALM to finance the
implementation of stranded cost recovery buyout or buy-down of any eligible
and every year thereafter, the ERC shall IPP contract, i.e. contracts approved
conduct a review to determine whether by the ERB as of 31 December
there is an under- or over recovery and 2000 as well as any other costs and
adjust (true-up) the level of stranded expenses incurred in connection with
cost recovery charge accordingly. In such buyout or buy-down: Provided,
determining whether there is an under- That the amount recoverable by
or over recovery and in determining the PSALM from the Universal Charge
stranded cost recovery portion of the fund shall not exceed the estimated
Universal Charge for the subsequent Stranded Contract Costs of such
period, the ERC shall base the calculation eligible IPP Contract, assuming that
on the following information submitted such buy-out or buy-down never
by the PSALM and the Distribution Utility occurred: Provided, further, That
which has an eligible contract: PSALM demonstrates to the ERC’s
satisfaction that such buy-out or
(i) a report of the amounts recovered buy-down will benefit electricity
for stranded costs during the past consumers by reducing that
year; and component of the Universal Charge
attributable to such IPP contract.
(ii) revised stranded cost amounts based
on current market information. (ii) The ERC shall verify the reasonable
amounts of claims petitioned by
SEC. 4. NPC Stranded Debt and Stranded PSALM and determine the manner
Contract Cost Recovery. – and duration by which full recovery
of Stranded Debt and Stranded
(a) Consistent with Section 32 of the Act, Contract Costs of NPC is attained:
the National Government shall directly Provided, That the duration for such
assume a portion of the financial recovery shall not be shorter than
obligations of NPC transferred to PSALM fifteen (15) years nor longer than
in an amount not to exceed Two Hundred twenty-five (25) years.
Billion Pesos (P 200,000,000,000.00).
(iii) Any amount to be included for
(b) The following guidelines shall govern the stranded cost recovery shall be
recovery by the PSALM of the Stranded reflected as a separate item in the
Debts and Stranded Contract Costs of consumer billing statement. The ERC
NPC: shall monitor and ensure that there
is a separate item in the consumer
(i) PSALM shall calculate the amount billing statement for stranded cost
of the Stranded Debts and Stranded recovery.
Contract Costs of NPC that shall form
part of the Universal Charge to be SEC. 5. Recovery of Stranded Contract Costs
determined, fixed, and approved by of Eligible Contracts of Distribution Utilities. –

(a) Within one (1) year from the start of contract cost recovery, its detailed
Retail Competition and Open Access, a plan and strategy to mitigate stranded
Distribution Utility that seeks to recover contract costs.
stranded contract costs arising from its
eligible contracts shall file with the ERC Other mitigating measures that are
a notice of such intent together with an reasonably known and generally accepted
estimated amount of such obligations. within the electric power industry shall
The Distribution Utility shall provide all be utilized. The ERC shall not require
pertinent information as may be required the Distribution Utility to take a loss to
by the ERC. Failure of the Distribution reduce stranded contract costs or divest
Utility to file within the date specified assets, unless the divestiture is imposed
shall mean non-eligibility for such as a penalty as provided herein.
recovery.
(e) Within three (3) months from the
(b) A Distribution Utility shall recover submission of the application for
stranded contract costs: Provided, stranded cost recovery by the relevant
however, That such costs of the IPPs of Distribution Utilities, the ERC shall verify
Distribution Utilities are subject to review the reasonable amounts and determine
by ERC in order to determine fairness the manner and duration for the full
and reasonableness in relation to the recovery of the Stranded Contract Costs
average price of land-based IPP projects of Eligible Contracts of Distribution
entered into by NPC at the time they Utilities: Provided, That the duration for
were contracted. The ERC shall take into such recovery shall not be shorter than
consideration all factors that affect the fifteen (15) years nor longer than twenty-
total cost of NPC IPP generation projects, five (25) years. For this purpose, “full
including direct or indirect subsidies or recovery of Stranded Contract Costs of
incentives provided by the Government. Eligible Contracts of Distribution Utilities”
shall mean recovery of Stranded Contract
(c) Any Distribution Utility which seeks to Costs of Eligible Contracts of Distribution
recover stranded costs shall have the Utilities authorized by the ERC after its
duty to mitigate its potential stranded pertinent review. Any amount to be
costs by exerting reasonable best efforts included for the recovery of Stranded
to: Contract Costs of Eligible Contracts of
Distribution Utilities shall be reflected as
(i) Reduce the costs of its existing a separate item in the consumer billing
eligible contracts with IPPs to a level statement.
not exceeding the average buying
price of other land-based electric (f) In the case of an over-recovery, the ERC
power generators; and shall ensure that any excess amount
shall be remitted to the Special Trust
(ii) Submit to an annual earnings review Fund (STF) created pursuant to Section
by the ERC and use its earnings 34 of the Act. A separate account shall
above its authorized rate of return to be created for this purpose that shall
reduce the book value of contracts be held in trust for any future claims of
until the end of the stranded cost Distribution Utilities for the recovery
recovery period. of their respective Stranded Contract
Costs of Eligible Contracts of Distribution
(d) The Distribution Utility shall submit to Utilities. At the end of the stranded cost
the ERC, during its filing for stranded recovery period, any remaining amount

or balance in this account shall be used (i) PSALM for the Stranded Debts and
to reduce the electricity rates to the End- Stranded Contract Costs of NPC;
users.
(ii) Distribution Utilities with respect
(g) A Distribution Utility, which has an eligible to their Stranded Contract Costs of
contract, duly authorized by the ERC, shall Eligible Contracts;
submit to ERC quarterly reports showing
the amount of stranded contract costs (iii) Missionary Electrification;
recovered and the balance remaining to
be recovered from the Universal Charge. (iv) Qualified Generation Companies
with respect to the equalization
Quarterly shall mean the calendar of taxes and royalties between
quarters of January 1 to March 31 (first indigenous or Renewable Energy
quarter), April 1 to June 30 (second Resources and imported fuels;
quarter), July 1 to September 30 (third
quarter), and October 1 to December (v) NPC, with respect to the
31 (fourth quarter). The relevant environmental charge of P 0.0025
Distribution Utility shall submit to the per kilowatt-hour sales to be used for
ERC the quarterly reports within thirty the rehabilitation and management
(30) days from the end of each calendar of watershed areas; and
quarter.
(vi) NPC/PSALM and Distribution Utilities
(h) Upon a finding by the ERC that a with respect to the mitigation of the
Distribution Utility which seeks to removal of cross subsidies.
recover stranded contract costs has failed
to comply with its mitigation obligation (b) Electricity End-users such as but not
under Section 33 of the Act, the ERC limited to:
may not allow the recovery of stranded
contract costs: Provided, That if there (i) All End-users of Distribution Utilities
is any fraud or misrepresentation by the such as residential, commercial, and
Distribution Utility, the ERC may impose industrial including government
appropriate penalties in accordance with and/or public buildings, irrigation
Section 46 of the Act. systems, and special lightings;

RULE 18. THE UNIVERSAL CHARGE (ii) Directly-connected End-users of NPC
such as but not limited to government
SECTION 1. Guiding Principle. – agencies and institutions, and
industrial enterprises;
Within one (1) year from the effectivity of the
Act, there shall be a Universal Charge to be (iii) Persons using Self-Generation
determined, fixed and approved by the ERC Facilities;
that shall be imposed on all electricity End-
users, including self-generation entities. (iv) Locators, developers, operators and
facilities operating in EZs; and
(v) Other entities identified by the ERC
This Rule shall apply to the following: pursuant to the intent of the Act.

(a) Petitioners for availments from the SEC. 3. Mitigation on the Removal of Cross
Universal Charge. Subsidies. –
(a) Unbundled rates of the NPC and the (a) Stranded Debts and
Distribution Utilities as approved by the Stranded Contract Costs of
ERC in accordance with Section 36 of the NPC;
Act, shall reflect the respective costs of
providing service to End-users without (b) Missionary Electrification;
any type of cross subsidy. The removal
of cross subsidies to the End-users (c) Equalization of taxes
of Distribution Utilities will however and royalties between
be mitigated and done gradually in indigenous or renewable
accordance with Section 74 of the Act. sources of energy vis-à-vis
ERC shall issue a phase out scheme to imported energy fuels;
gradually remove the cross subsidies.
Any amount of subsidy provided to End- (d) Environmental Charge of P
users during the phase out period shall be 0.0025 per kilowatt-hour
recovered through the Universal Charge. sales for the rehabilitation
and maintenance of
(b) With respect to SPUG, rates for Missionary watershed areas; and
Electrification shall be in accordance with
Rule 15 on Unbundling of Rates. (e) Mitigation Fund for the
removal of cross-subsidies
SEC. 4. Procedures for Petitions Against the of NPC and Distribution
Universal Charge. – Utilities.

(a) For the first year after the effectivity of (3) Period of disbursement by each
the Act, the following rules shall apply: of the beneficiaries as well
as submission of reportorial
(i) The petitioners identified in Section 2 requirements prescribed by the
of this Rule shall file their availments ERC.
from the Universal Charge with the
ERC on or before 15 March 2002 (b) Petitions for availment under the
and submit all pertinent documents Universal Charge for the succeeding
in support of such availments made years shall be submitted to the ERC on or
and the basis for their computation. before March 15 of every year.

(ii) The ERC shall evaluate the (c) A Distribution Utility that seeks to
petitions and thereafter issue the recover Stranded Contract Costs of its
corresponding order no later than 26 Eligible Contracts shall submit a petition
June 2002 which shall prescribe the for availment under the Universal Charge
following: to the ERC within one (1) year from
the start of Open Access. Within three
(1) The Universal Charge on a per (3) months from the submission of the
kWh basis to be included in the petition by such Distribution Utility, the
billing statements to the End- ERC shall verify the reasonable amounts
users; and determine the manner and duration
for the full recovery thereof, as approved
(2) Breakdown of the applicable by the ERC.
Universal Charge for each of the
intended purposes: (d) With respect to the equalization of taxes
and royalties applied to indigenous or
renewable sources of energy, qualified
Generation Companies shall be entitled (b) Separate books of accounts shall be
to make claims against STF created maintained by the Distribution Utility and
for this purpose. The STF shall be made available to the ERC for purposes
constituted out of the proceeds from of monitoring, verifying and accounting
the Universal Charge specified under of amounts collected from the Universal
Section 34 of the Act: Provided, That said Charge and remitted to the PSALM.
claims shall only be to the extent of the
additional cost or reduction in the cost of SEC. 6. Administration of the Universal
generating electricity. For this purpose, Charge. –
qualified Generation Companies making
said claims shall submit a detailed (a) Pursuant to the last paragraph of Section
statement of their sales and costs of 34 of the Act, PSALM shall act as the
operation, including a breakdown of administrator of the funds generated
how their claims are estimated and the from the Universal Charge. For this
impact thereof on generation rates, purpose, the PSALM shall create a STF to
the corresponding assumption and be established in the Bureau of Treasury
justification therefor and such other (BTr) or in a Government Financing
information as may be required by the Institution (GFI) that is acceptable to the
PSALM. Only those claims that meet the DOF. Separate STFs shall be established
foregoing documentation requirements for each of the intended purposes of
shall be evaluated and acted upon by the Universal Charge. Funds shall be
PSALM. disbursed in an open and transparent
manner and shall only be used for the
(e) Failure by any petitioner to submit its intended purposes specified in Section 3
petition within the periods specified of this Rule.
above shall result in a forfeiture of such
petition for the period in question. (b) All qualified availments shall be approved
and certified by the ERC. In this regard,
(f) In case of over- or under-recovery by PSALM, in consultation with the DOF,
beneficiaries, true-up adjustments shall promulgate, within one (1) year
shall follow the rules and regulations from the effectivity of the Act and subject
to be prescribed by the ERC, except as to the approval of the ERC, procedures
otherwise provided in these Rules. and guidelines that shall govern all
remittances to and disbursements from
SEC. 5. Collection of the Universal Charge. – the STF.

(a) The Universal Charge shall be a non-by (c) The PSALM shall transfer funds from
passable charge that shall be collected the STF and shall distribute to the
from all End-users on a monthly basis beneficiaries on or before the twentieth
by the Distribution Utilities or Suppliers (20th) day of each month.
in case of Contestable Markets. Any
End-user or self-generation entity not (d) The PSALM shall submit to the DOF and
connected to a Distribution Utility shall ERC a report on the remittances and
remit its corresponding Universal Charge disbursements against the fund on a
directly to the TRANSCO. Collections by quarterly basis.
the Distribution Utilities shall be remitted
to the PSALM on or before the fifteenth (e) Separate Books of accounts shall be
(15th) day of the succeeding month, net maintained by the PSALM for over-
of any amount due to the Distribution recovery of the Distribution Utility
Utility. stranded cost component and made
available to the ERC for purposes of ERC may impose the appropriate fines
monitoring and accounting for sums and penalties prescribed in Section 46
collected from the Universal Charge. of the Act, including but not limited to,
assessed interest charges.
(f) In the event that the total amount
collected for the Universal Charge is RULE 19. MANDATED RESIDENTIAL REBATE
greater than the actual availments
against the Universal Charge, the PSALM (a) The ERC shall monitor and ensure the
shall retain the balance within the STF to implementation of its Resolution No.
pay for periods where a shortfall occurs. 2001-04 issued on 26 July 2001 and any
amendments thereto. The ERC shall
(g) In determining the amount which a impose fines and penalties on parties
Distribution Utility can net off from its who fail to comply with said Resolution.
remittance of the Universal Charge to
PSALM, the Distribution Utility shall (b) The reduction shall be reflected as a
not discriminate in its own favor at the separate item in the consumer billing
expense of other beneficiaries in the statement.
event that actual collections differ from
expected collections based on the level of RULE 20. LIFELINE RATE
kilowatt-hour sales used by ERC in setting
the Universal Charge per kilowatt-hour SECTION 1. Guiding Principle. –
(kwh). In such cases, the Distribution
Utility shall only retain its proportionate Pursuant to Section 73 of the Act, a socialized
share in the actual collection. pricing mechanism called a Lifeline Rate for
the Marginalized End-users shall be set by the
SEC. 7. Deferment. – ERC.

All Self-Generation Facilities whether new, SEC. 2. Scope of Application. –
existing or under construction shall not
be covered by the imposition of Universal The provision of Lifeline Rate shall be
Charge for a period of four (4) years from applied to all Marginalized End-users of all
its imposition: Provided, That, such Self- Distribution Utilities pursuant to the Act. It
Generation Facilities shall register with the is the responsibility of the ERC to monitor
ERC and PSALM. compliance to specific guidelines it shall issue
pursuant to the implementation of Lifeline
SEC. 8. Fines and Penalties. – Rate.

(a) In cases where the TRANSCO or its Buyer SEC. 3. Application. –
or Concessionaire or a Distribution
Utility collects funds earmarked for the (a) The Lifeline Rate shall be exempted from
Universal Charge but fails to remit the the cross subsidy removal under the Act
same to PSALM on or before the fifteenth for a period of ten (10) years, unless
(15th) day of the succeeding month, the extended by law.
ERC may impose the appropriate fines
and penalties prescribed in Section 46 (b) Each Distribution Utility shall file a
of the Act including, but not limited to, petition with the ERC recommending the
assessed interest charges. level of consumption (kWh per month) to
be qualified for the Lifeline Rate.
(b) In cases where a Self-Generation Facility
refuses to pay the Universal Charge, the
(c) The ERC shall determine and approve SEC. 3. Domicile. –
different levels of consumption and cross-
subsidy support for each Distribution The PSALM shall have its principal office and
Utility or classification of Distribution place of business within Metro Manila.
Utilities.
SEC. 4. Term of Existence. –
PART IV – PRIVATIZATION OF NATIONAL
POWER CORPORATION Unless otherwise provided by law, PSALM
shall exist for a period of twenty-five (25)
RULE 21. POWER SECTOR ASSETS AND years from the effectivity of the Act, and all
LIABILITIES MANAGEMENT CORPORATION assets held by it, all moneys and properties
(PSALM) belonging to it, and all its liabilities
outstanding upon the expiration of its term of
SECTION 1. Creation of PSALM. – existence shall revert to and be assumed by
the National Government. Upon expiration
Pursuant to Section 49 of the Act, a of the term of PSALM, the administration of
government-owned and –controlled he STF shall be transferred to the DOF or any
corporation known as the “Power Sector of the DOF attached agencies as designated
Assets and Liabilities Management by the DOF Secretary.
Corporation”, hereinafter referred to as the
“PSALM Corp.” or “PSALM,” was created to SEC. 5. Powers. –
take ownership of all existing NPC generation
assets, liabilities, PSALM shall, in the performance of its
functions and for the attainment of its
IPP contracts, real estate and all other objectives, have the following powers:
disposable assets. All outstanding obligations
of the NPC arising from loans, issuances of (a) To formulate and implement a program
bonds, securities and other instruments for the sale and Privatization of the
of indebtedness shall be assumed by the NPC assets and IPP contracts and the
PSALM, within one hundred eighty (180) days management and liquidation of Stranded
from the approval of the Act. Debts and Stranded Contract Costs of
NPC, such liquidation to be completed
NPC and PSALM shall take such measures within the term of existence of the
and execute such documents to effect the PSALM;
transfer of the ownership and possession of
all the assets, rights, privileges, and liabilities (b) To take title to and possession of,
required by the Act to be transferred by NPC administer and conserve the assets
to PSALM. transferred to it, including the execution
of bilateral contracts to sell power
SEC. 2. Purpose and Objective. – from undisposed assets and contracts
transferred by NPC;
The principal purpose of the PSALM is to
manage the orderly sale, disposition, and (c) To sell or dispose the transferred assets
Privatization of NPC generation assets, real at such price and under such terms and
estate and other disposable assets, and IPP conditions as it may deem necessary or
contracts with the objective of managing and proper, subject to applicable laws, rules
liquidating all NPC financial obligations and and regulations;
stranded contract costs in an optimal manner.
(d) To take title to and possession of, and
assume all rights and obligations of NPC
under IPP contracts, and to appoint, after of the National Government: Provided,
public bidding in a transparent and open That all such debts or borrowings shall
manner, qualified independent entities have been paid off or settled before the
who shall act as IPP Administrators in end of its corporate life;
accordance with the Act;
(l) To restructure existing loans of the NPC;
(e) To calculate the amount of the Stranded
Debts and Stranded Contract Costs of (m) To collect, administer, and apply NPC’s
NPC which shall form part of the basis portion of the Universal Charge;
of the ERC in the determination of the
Universal Charge; (n) To issue other forms of financial
instruments such as warrants, options,
(f) To liquidate Stranded Contract convertibles and to create Special
Costs of NPC utilizing proceeds from Purpose Vehicles (SPVs) to maximize
appropriations, sales and other property proceeds and value, as well as efficiently
contributed to it, including the proceeds manage its liabilities;
from the Universal Charge;
(o) To structure the sale, Privatization
(g) To adopt rules and regulations as may or disposition of NPC assets and IPP
be necessary or proper for the orderly Contracts and/or their energy output
conduct of its business or operations; based on terms and conditions which
shall optimize the value and sale prices of
(h) To sue and be sued in its name; said assets;

(i) To appoint or hire, transfer, remove and (p) To create and administer STFs under
fix the compensation of its personnel and Section 34 of the Act and these Rules;
such advisors or other Persons as may
be necessary in the sale, Privatization (q) To operate the generation assets, directly
and disposition of NPC assets and IPP or through NPC, prior to Privatization
contracts: Provided, however, That of such assets. Towards this end, while
PSALM shall hire its own personnel PSALM operates the generation assets,
only if absolutely necessary, and as far it shall be considered a Generation
as practicable, shall avail itself of the Company;
services of personnel detailed from other
government agencies; (r) To mitigate its potential stranded costs by
making reasonable best efforts to reduce
(j) To own, hold, acquire, or lease real and the cost of existing contracts with IPPs;
personal properties as may be necessary
or required in the discharge of its (s) To ensure that SPUG conduct proper
functions; monitoring, accounting and control of
expenditures, and efficient utilization of
(k) To borrow money and incur such the missionary electrification funds from
liabilities, as may be required to service the Universal Charge; and
all obligations transferred from NPC and
loans from ECs assumed from NEA in (t) To do any act necessary or proper to carry
accordance with the relevant sections out the purpose for which it was created,
of these Rules, including the issuance including the formation of one or more
of bonds, securities or other evidence subsidiaries to maximize Privatization
of indebtedness utilizing its assets as proceeds, enter into compromise
collateral and/or through the guarantees agreements, or take such other acts as
may be determined by the PSALM Board the Board, and take responsibility
to be necessary, useful, incidental or for the efficient discharge of
auxiliary to accomplish its purposes and management functions;
objectives as specified in the Act.
(ii) To oversee the preparation of the
SEC. 6. PSALM Board of Directors. – budget of PSALM;

PSALM shall be administered, and its powers (iii) To direct and supervise the operation
and functions exercised, by a Board of and internal administration of PSALM
Directors which shall be composed of the and, for this purpose, may delegate
Secretary of the DOF as the Chairman, and some or any of his administrative
the Secretary of the DOE, the Secretary of the responsibilities and duties to other
DBM, the Director-General of the NEDA, the officers of the PSALM;
Secretary of the DOJ, the Secretary of the DTI
and the President of the PSALM as ex-officio (iv) Subject to the guidelines and policies
members thereof. set up by the Board, to appoint and
fix the number and compensation of
SEC. 7. Powers of PSALM Board. – subordinate officials and employees
of the PSALM; and for cause, to
All the powers and functions of PSALM shall remove, suspend, or otherwise
be vested in and exercised by its Board of discipline any subordinate employee
Directors. of PSALM;

SEC. 8. PSALM Board Meetings and Quorum. (v) To submit an annual report to
– the Board on the activities and
achievements of PSALM at the
The Board of Directors shall meet regularly close of each fiscal year and upon
and as frequently as may be necessary to approval thereof, submit a copy to
enable it to discharge its functions and the President of the Philippines and
responsibilities. The presence at a meeting of to such other agencies as may be
four (4) members shall constitute a quorum, required by law and under these
and the decision of the majority of three (3) Rules;
members present at a meeting where there is
quorum shall be the decision of the Board of (vi) To represent PSALM in all dealings
Directors. and transactions with other offices,
agencies and instrumentalities of the
SEC. 9. Powers of the PSALM President. – National Government and with all
Persons and other entities, private or
(a) The President of PSALM shall be appointed public, domestic or foreign; and
by the President of the Philippines. In the
absence of the Chairman and the Vice- (vii) To exercise such other powers and
Chairman, the PSALM President shall duties as may be vested in him by the
preside over Board meetings. Board from time to time.

(b) The PSALM President shall be the Chief SEC. 10. Exemption from the Salary
Executive Officer of PSALM and shall have Standardization Law. –
the following powers and duties:
The salaries and benefits of employees in the
(i) To execute and administer the PSALM shall be exempt from Republic Act No.
policies and measures approved by 6758 and shall be fixed by the PSALM Board.
SEC. 11. Property of PSALM. – must be made within five (5) years from
such assumption of loans by PSALM by
The following funds, assets, contributions and ECs who have transferred ownership
other properties shall constitute the property or Control of its assets, franchise or
of the PSALM: operations pursuant to Section 60 of the
Act;
(a) The generation assets, real estate, IPP
Contracts, other disposable assets of (g) Proceeds from insurance claims
NPC, proceeds from the operation corresponding to assets transferred to
or disposition of such assets and the PSALM by NPC; and
residual assets from BOT, ROT, and other
variations thereof. The proceeds from (h) Other sources of funds as may be
the operation and disposition of NPC determined by PSALM necessary for the
assets shall include: above-mentioned purposes.

(i) Net profit of NPC; SEC. 12. Claims Against PSALM. –

(ii) Earning before interest, taxes, The following shall constitute the claims
depreciation and amortization of the against PSALM:
Pulangui and Agus Complexes;
(a) NPC liabilities transferred to PSALM;
(iii) Net profit of TRANSCO;
(b) Transfers from the National Government;
(iv) Proceeds from the disposition and
Privatization of PSALM’s generation, (c) New loans, such as, but not limited to
other disposable assets, and those in the form of bonds, convertible
TRANSCO, net of all transaction instruments, warrants, leases and similar
costs and fees associated with such structures;
disposition and Privatization; and
(d) Obligations under IPP contracts
(v) Net profit arising from the transferred by NPC to PSALM;
administration of IPPs.
(e) Loans of ECs that are to be assumed by
(b) Transfers from the National Government; PSALM under Section 60 of the Act; and

(c) Proceeds from loans incurred to (f) Expenses for rehabilitation and
restructure or refinance NPC’s transferred maintenance of Agus and Pulangi
liabilities: Provided, That all borrowings Complexes.
shall be fully paid for or settled by the
end of the life of the PSALM; RULE 22. NATIONAL TRANSMISSION
CORPORATION (TRANSCO)
(d) Proceeds from the Universal Charge
allocated for Stranded Debts and SECTION 1. Creation of TRANSCO. –
Stranded Contract Costs of NPC;
Pursuant to Section 8 of the Act, TRANSCO,
(e) Official assistance, grants and donations which shall be wholly owned by PSALM, has
from external sources; been created to assume the transmission
facilities of NPC, all other assets related to
(f) Repayment by ECs of such ECs loans transmission operations, including nationwide
assumed by PSALM. Such repayments franchise of NPC for the operation of the
transmission system and the Grid, and to Concessionaire, until their disposal to
assume the electrical transmission functions Qualified Distribution Utilities.
of the NPC, including among others, the
planning, construction and centralized Grid SEC. 3. Corporate Powers of the TRANSCO. –
operation and maintenance of high voltage
transmission facilities, Grid interconnections, As a corporate entity, TRANSCO shall have the
ancillary and other allied facilities. following corporate powers:

Pursuant to and in accordance with the (a) To have continuous succession under its
requirements of the Act, NPC, PSALM and corporate name until otherwise provided
TRANSCO shall take such measures and by law;
execute such documents to effect the
transfer of the ownership and possession (b) To adopt and use a corporate seal and
of the transmission and subtransmission to change, alter or modify the same, if
facilities of NPC and all other assets related to necessary;
transmission operations. Upon such transfer,
the nationwide franchise of NPC for the (c) To sue and be sued;
operation of the transmission system and the
Grid shall transfer from NPC to TRANSCO. (d) To enter into contracts, leases and
execute any instrument necessary or
SEC. 2. Transmission Ownership and convenient for the purpose for which it is
Management. – created;

(a) For the purpose of Section 1 of this Rule, (e) To borrow funds from any source, whether
“all other assets” related to transmission private or public, foreign or domestic,
and subtransmission facilities shall and issue bonds and other evidence of
include, but not be limited, to the indebtedness: Provided, That in the case
following: of the bond issues, it shall be subject
to the approval of the President of the
(i) System operations facilities such as Philippines upon recommendation of the
telecommunications and Supervisory Secretary of Finance: Provided, further,
Control and Data Acquisition That foreign loans shall be obtained in
(SCADA) systems including offices accordance with existing laws, rules and
and laboratory buildings housing regulations of the Bangko Sentral ng
these equipment; and Pilipinas (BSP);

(ii) TRANSCO offices and real estate (f) To pledge, grant a security interest in or
properties, vehicles, laboratory and otherwise encumber its assets;
test equipment, spare parts and
other physical structures. (g) To maintain a provident fund which
consists of contributions made by
(b) The assets of NPC related to the both the TRANSCO and its officials and
transmission/subtransmission function employees and their earnings for the
shall be transferred by NPC directly to payment of benefits to such officials
TRANSCO on or before 26 December and employees or their heirs under such
2001. terms and conditions as it may prescribe;

(c) Subtransmission Assets transferred (h) To create subsidiaries for purposes such
to TRANSCO shall be operated and as the disposition of Subtransmission
maintained by TRANSCO or its Buyer or Assets to Qualified Distribution Utilities
and the operation thereof prior to economics, law or business management. No
disposal; member of the Board or any of his relatives
within the fourth civil degree of consanguinity
(i) To do any act necessary or proper to or affinity, legitimate or common law, shall
carry out the purpose for which it is have any interest, either as investor, officer
created, or any act which, from time to or director, in any Generation Company or
time, may be declared by the TRANSCO Distribution Utility or other entity engaged
Board as necessary, useful, incidental or in transmitting, generating and supplying
auxiliary to accomplish its purposes and electricity specified by ERC.
objectives;
SEC. 5. Powers and Duties of the Board. –
(j) Generally, to exercise all the powers of a
corporation under the Corporation Code The following are the powers of the Board:
insofar as they are not inconsistent with
the Act; and (a) To provide strategic direction for
TRANSCO, and formulate medium
(k) The TRANSCO may exercise the power and long-term strategies pursuant to
of eminent domain on behalf of itself, the vision, mission and objectives of
the Buyer or Concessionaire or any TRANSCO;
successor-in-interest thereto, subject to
the requirements of the Constitution and (b) To develop and adopt policies and
other laws. Except as provided in the Act, measures for the efficient and effective
no Person, company or entity other than management and operation of TRANSCO,
TRANSCO shall own any transmission including the formation of one or more
facilities. subsidiaries;

SEC. 4. TRANSCO Board of Directors. – (c) To organize, re-organize, and determine
the organizational structure and staffing
All the powers of the TRANSCO shall be pattern of TRANSCO; abolish and create
vested in and exercised by a Board of offices and positions; fix the number of
Directors. The Board shall be composed of a its officers and employees; transfer and
Chairman and six (6) members. The Secretary re-align such officers and personnel; and
of the DOF shall be the ex-officio Chairman fix their compensation, allowance, and
of the Board. The other members of the benefits;
TRANSCO Board shall include the Secretary
of the DOE, the Secretary of the DENR, (d) To fix the compensation of the President
the President of TRANSCO, and three (3) of TRANSCO and to appoint and fix the
members to be appointed by the President compensation of other corporate officers;
of the Philippines, each representing Luzon,
Visayas and Mindanao, one of whom shall be (e) For cause, to suspend or remove any
the President of PSALM. corporate officer appointed by the Board;

The members of the Board so appointed by (f) To adopt and set guidelines for the
the President of the Philippines shall serve for employment of personnel on the basis of
a term of six (6) years, except that any Person merit, technical competence and moral
appointed to fill-in a vacancy shall serve only character;
the unexpired term of his/her predecessor
in office. All members of the Board shall be (g) Any provision of the law to the contrary
professionals of recognized competence and notwithstanding, to write-off bad debts;
expertise in the fields of engineering, finance, and
(h) Other powers not inconsistent with the the Board, and take responsibility
Act. for the efficient discharge of
management functions;
SEC. 6. Board Meetings. –
(ii) To oversee the preparation of the
The Board shall meet as often as may be budget of TRANSCO;
necessary upon the call of the Chairman of the
Board, or in his absence, the Vice-Chairman, (iii) To direct and supervise the operation
or in the latter’s absence, by a majority of the and internal administration of
Board members. TRANSCO and, for this purpose,
may delegate some or any of his
SEC. 7. Board Per Diems and Allowances. – administrative responsibilities and
duties to other officers of TRANSCO;
The members of the Board shall receive a
per diem for each regular or special meeting (iv) Subject to the guidelines and policies
of the Board actually attended by them and, set up by the Board, to appoint and
upon approval of the Secretary of the DOF, fix the number and compensation of
such other allowances as the Board may subordinate officials and employees
prescribe. of TRANSCO; and for cause, to
remove, suspend or otherwise
SEC. 8. Quorum. – discipline any subordinate employee
of TRANSCO;
The presence of at least four (4) members of
the Board shall constitute a quorum, which (v) To submit an annual report to
shall be necessary for the transaction of any the Board on the activities and
business. The affirmative vote of a majority achievements of TRANSCO at the
of the members present in a quorum shall be close of each fiscal year and upon
adequate for the approval of any resolution, approval thereof, submit a copy to
decision or order, except when the Board the President of the Philippines and
shall otherwise agree that a greater vote is to such other agencies as may be
required. required by law;

SEC. 9. Powers of the President of TRANSCO. (vi) To represent TRANSCO in all dealings
– and transactions with other offices,
agencies, and instrumentalities of
(a) So long as TRANSCO remains wholly the National Government and with
owned by PSALM, the President of all Persons and other entities, private
TRANSCO shall be appointed by the or public, domestic or foreign; and
President of the Philippines. In the
absence of the Chairman and Vice- (vii) To exercise such other powers and
Chairman, the President of TRANSCO duties as may be vested in him by the
shall preside over Board meetings. Board from time to time.

(b) The President of TRANSCO shall be the SEC. 10. Exemption from the Salary
Chief Executive Officer of TRANSCO and Standardization Law. –
shall have the following powers and
duties: The salaries and benefits of employees in the
TRANSCO shall be exempt from Republic Act
(i) To execute and administer the No. 6758 and shall be fixed by the TRANSCO
policies and measures approved by Board.
SEC. 11. TRANSCO Privatization. – the ERC.

(a) Within six (6) months from the effectivity (c) In case of joint venture/consortium with
of the Act, the PSALM shall submit a foreign members/participants of the
Privatization plan for endorsement by Buyer or Concessionaire or any other
the Power Commission and the approval successor-in-interest to TRANSCO, a
of the President of the Philippines. The foreign participant shall be financially
President of the Philippines thereafter and technically capable, with proven
shall direct PSALM to award, in open domestic and/or international experience
competitive bidding, the transmission and expertise as a leading transmission
facilities, including grid interconnections system operator. Such experience
and Ancillary Services to a qualified must be in a transmission system of
party either through an outright sale, a comparable capacity and coverage as the
Concession Contract or any other means Philippines.
not inconsistent with the objectives of
the Act. The Buyer or Concessionaire SEC. 12. Responsibilities of Buyer or
or any other successor-in-interest to Concessionaire. –
TRANSCO shall be responsible for the
improvement, expansion, operation (a) This Rule shall apply to TRANSCO or its
or maintenance of the transmission Buyer or Concessionaire or any successor-
assets and the operation of any related in-interest thereto.
businesses. PSALM and TRANSCO shall
secure a nationwide franchise for and in (b) The Buyer or Concessionaire or any
behalf of the Buyer or Concessionaire. successor-in-interest thereto, shall:
The award shall result in maximum
present value of proceeds to the National (i) Be responsible for the improvement,
Government. In case a Concession expansion, operation and/or
Contract is awarded, the Concessionaire maintenance of the Grid;
shall have a contract period of twenty-five
(25) years, subject to review and renewal (ii) Comply with the Grid Code and the
for a maximum period of another twenty- TDP as approved; and
five (25) years. Upon the expiration or
termination of the Concession Contract, (iii) Comply with the key performance
the transmission facilities and assets, targets and standards set by ERC,
including the nationwide franchise for in terms of physical transmission
the operation of the transmission system system and the management of the
and Grid shall revert to TRANSCO. transmission activity.

(b) In any case, the Buyer or Concessionaire (c) The performance indicators for reliability,
or any other successor-in-interest to security, adequacy, integrity and stability
TRANSCO shall comply with the Grid shall include, but not limited to, the
Code and the TDP as approved. The following:
sale agreement/Concession Contract
shall include, but not be limited to, the (i) Number of Interruption Events;
provision for performance and financial
guarantees or any other covenants (ii) Sustained Average Interruption
that the National Government may Frequency Index;
require. Failure to comply with such
obligations shall result in the imposition (iii) Momentary Average Interruption
of appropriate sanctions or penalties by Frequency Index;
(iv) Sustained Average Interruption facilities. The TRANSCO shall determine
Duration Index; the disposal value of the Subtransmission
Assets based on the revenue potential
(v) System Interruption Severity Index; of such assets. In case of disagreement
in valuation, procedures, ownership
(vi) Frequency of tripping per 100 ckt- participation and other issues, the ERC
km; shall resolve such issues.

(vii) Average Forced Outage Duration; (c) The take over by a Distribution Utility of
any Subtransmission Asset shall not cause
(viii) Accumulated Time Error; a diminution of service and quality to the
End-users. Where there are two (2) or
(ix) Frequency Limit Violation; and more connected Distribution Utilities,
the consortium or juridical entity shall
(x) Voltage Limit Violations. be formed by and composed of all of
them and thereafter shall be granted a
SEC. 13. Privatization of Subtransmission. – franchise to operate the Subtransmission
Assets by the ERC.
(a) The subtransmission functions and
assets of TRANSCO shall be segregated The subscription rights of each
from the transmission functions, Distribution Utility involved shall be
assets and liabilities for transparency proportionate to its load requirements
and disposal: Provided, That the unless otherwise agreed by such
Subtransmission Assets shall be operated Distribution Utilities.
and maintained by TRANSCO or its Buyer
or Concessionaire until their disposal Aside from the PSALM, TRANSCO and
to Qualified Distribution Utilities connected Distribution Utilities, no third
which are in a position to take over the party shall be allowed ownership or
responsibility for operating, maintaining, management participation, in whole or
upgrading, and expanding said assets. All in part, in such subtransmission entity.
transmission and subtransmission related
liabilities of NPC shall be transferred to RULE 23. PRIVATIZATION
and assumed by the PSALM. OF THE ASSETS OF NPC

(b) TRANSCO shall negotiate with and SECTION 1. Guiding Principle. –
thereafter transfer such functions,
assets, and associated liabilities to the Consistent with Section 47 of the Act, the
Qualified Distribution Utility or utilities PSALM shall privatize the assets transferred
connected to such subtransmission to it from NPC in accordance with these Rules.
facilities not later than two (2) years Within one hundred eighty (180) days from
from the effectivity of the Act or the the effectivity of the Act, PSALM shall submit
start of Open Access, whichever comes a Privatization plan for the endorsement by
earlier: Provided, That in the case of ECs, the Power Commission and the approval of
the TRANSCO shall grant concessional the President of the Philippines. This plan
financing over a period of twenty (20) shall cover the total Privatization of the
years: Provided, however, That the transmission and generation assets, real
installment payments to TRANSCO for the estate, and other disposable assets as well
acquisition of subtransmission facilities as the existing IPP contracts of NPC, except
shall be given first priority by the ECs for assets of SPUG. Upon approval of the
out of the net income derived from such Privatization plan, PSALM shall implement
the same. capacities developed pursuant to Republic
Act No. 6957 (BOT Law), as amended
The participation by Filipino citizens and by Republic Act No. 7718, and any such
corporations in the purchase of NPC assets generation asset whose construction was
shall be encouraged. not financed by NPC but whose output
is bought by NPC under Purchase Power
SEC. 2. Scope of Privatization. – Agreements (PPAs), Energy Conversion
Agreements (ECAs) or any other similar
(a) NPC Generation, Generation-Related, contractual relationship.
and Other Assets.
SEC. 3. Privatization Objectives. –
Except for the assets of SPUG, NPC assets
to be privatized shall include: The Privatization of the NPC assets intends to
achieve the following objectives:
(i) all generation assets and all
generation-related machineries and (a) To ensure and accelerate the total
equipment; electrification of the country;

(ii) all real estate and the improvements (b) To ensure the quality, reliability, security
made thereto; and and affordability of the supply of electric
power;
(iii) disposable assets such as facilities,
properties, equipment and other (c) To ensure transparent and reasonable
assets not essential to the operation prices of electricity in a regime of free
of NPC. and fair competition and full public
accountability to achieve greater
To provide for an orderly disposition of operational and economic efficiency
these assets, NPC shall provide PSALM an and enhance the competitiveness of
inventory of all these assets within one Philippine products in the global market;
hundred and twenty (120) days from the
effectivity of the Act. (d) To enhance the inflow of private capital
and broaden the ownership base of the
(b) NPC Transmission, Subtransmission, power generation, transmission and
Interconnection and Ancillary Assets. distribution sectors;

The transmission, subtransmission, (e) To ensure fair and non-discriminatory
interconnection and ancillary assets of treatment of public and private sector
NPC, as defined in Section 8 of the Act and entities in the process of Restructuring
further detailed in Rule 6 on Transmission the electric power industry;
Sector and Rule 22 on TRANSCO, shall be
transferred by NPC directly to TRANSCO. (f) To protect the public interest as it is
For this purpose, NPC shall submit a list affected by the rates and services of
of these assets to PSALM and TRANSCO electric utilities and other providers of
within one hundred and twenty (120) electric power;
days from the effectivity of the Act.
(g) To assure socially and environmentally
(c) IPP Contracts of NPC. compatible energy sources and
infrastructure;
Consistent with Section 8 of this Rule, IPP
Contracts of NPC shall refer to generation
(h) To promote the utilization of indigenous restructured units;
and new and Renewable Energy
Resources in power generation in order (ii) Broad geographical groupings to
to reduce dependence on imported ensure efficiency of operations but
energy; and without the formation of regional
companies or consolidation of
(i) To ensure consumer protection and market power;
enhance the competitive operation of
the electricity market. (iii) Portfolio of plants and IPP contracts
to achieve management and
SEC. 4. Privatization Guidelines. – operational synergy without
dominating any part of the market or
(a) The Privatization value to the National of the load curve; and
Government of the NPC generation
assets, real estate, other disposable (iv) Such other factors as may be deemed
assets as well as IPP contracts shall be beneficial to the best interest of the
optimized. National Government while ensuring
attractiveness to potential investors.
(b) The participation by Filipino citizens
and corporations in the purchase of (d) All assets of NPC shall be sold in an open
NPC assets shall be encouraged. Equity and transparent manner through public
or similar instruments of participation bidding, and the same shall apply to the
by End-users or consumers must be disposition of IPP contracts;
explored exhaustively.
(e) In cases of transfer of possession,
In the case of foreign investors, at least Control, operation or Privatization of
seventy-five percent (75%) of the funds multi-purpose hydro facilities, safeguards
used to acquire NPC generation assets shall be prescribed to ensure that the
and IPP contracts shall be inwardly National Government may direct water
remitted and registered with the BSP. usage in cases of shortage to protect
potable water, irrigation, and all other
(c) The NPC plants and/or its IPP contracts requirements imbued with public
assigned to IPP Administrators, its related interest. The rights of NPC over such
assets and assigned liabilities, if any, shall multi-purpose hydro facilities shall be
be grouped in a manner which shall transferred to PSALM;
promote the viability of the resulting
Generation Companies, ensure economic (f) The Agus and the Pulangui complexes in
efficiency, encourage competition, foster Mindanao shall be excluded from among
reasonable electricity rates and create the Generation Companies that will be
market appeal to optimize returns to initially privatized. Their ownership shall
the government from the sale and be transferred to the PSALM and both
disposition of such assets in a manner shall continue to be operated by the
consistent with the objectives of the Act. NPC. Said complexes may be privatized
In the grouping of the generation assets not earlier than ten (10) years from
and IPP contracts of NPC, the following the effectivity of the Act, and, except
criteria shall be considered: for Agus III, shall not be subject to BOT,
Build-Rehabilitate-Operate-Transfer
(i) A sufficient scale of operation (BROT) and other variations thereof
and balance sheet strength to pursuant to Republic Act No. 6957 (BOT
promote the financial viability of the Law), as amended by Republic Act No.
7718. The Privatization of Agus and (k) NPC may generate and sell electricity
Pulangui complexes shall be left to the only from the undisposed generation
discretion of PSALM in consultation with assets and IPP contracts of PSALM and
Congress. PSALM, out of the earnings shall not incur any new obligations
in the operation of Agus and Pulangui to purchase power through bilateral
complexes, shall ensure the availability of contracts with Generation Companies or
adequate funds intended for the upkeep other Suppliers; and
of facilities to include funds for repairs,
maintenance and expansion of existing (l) The sale, transfer or disposition of NPC
facilities; assets shall not affect existing NPC
contractual obligations.
(g) The steamfield assets and generation
plants of each geothermal complex SEC. 5. Elements of the Privatization Plan. –
shall not be sold separately. They shall
be combined and each geothermal The Privatization plan for NPC assets shall
complex shall be sold as one package contain, among others, the following principal
through public bidding. The geothermal elements:
complexes covered by this requirement
include, but not limited to, Tiwi-Makban, (a) Structure, sequence, timing and terms of
Leyte A and B, Tongonan, Palinpinon, and asset disposition;
Mt. Apo.
(b) Employee issues;
(h) The ownership of the Caliraya-Botokan-
Kalayaan (CBK) pump storage complex (c) Management of debt obligations;
shall be transferred to PSALM and
operated by NPC on behalf of PSALM for (d) Management of IPP obligations, including
a period of ten (10) years. appointment of IPP Administrators in
accordance with Section 51 (c) of the Act;
(i) Not later than three (3) years from the
effectivity of the Act, and in no case later (e) Options for the sale of other assets; and
than the initial implementation of Open
Access, at least seventy percent (70%) of (f) Overall timetable and progress
the total capacity of generation assets of milestones.
NPC and of the total capacity of the power
plants under contract with NPC located SEC. 6. Privatization of Hydroelectric
in Luzon and Visayas shall have been Generation Plants. –
privatized: Provided, That any unsold
capacity shall be privatized not later than (a) Consistent with Section 47 (e) of the
eight (8) years from the effectivity of the Act and Section 4 (f) of this Rule, the
Act; Privatization of hydro facilities of NPC
shall cover the power component
(j) Except as otherwise provided in including assignable long-term water
these Rules, all appropriate existing rights agreements for the use of water,
authorizations, licenses and permits which shall be passed onto and respected
issued by the National Government, by the buyers of the hydroelectric power
including its departments, bureaus plants.
and agencies, and LGUs to NPC shall
automatically transfer to PSALM; (b) The National Water Resources Board
(NWRB) shall ensure that the allocation

for irrigation, as indicated by the NIA (b) NPC shall not incur any new obligations
and requirements for domestic water to purchase power through bilateral
supply as provided for by the appropriate contracts with Generation Companies or
Local Water District(s) are recognized other Suppliers.
and provided for in the water rights
agreements. NPC or PSALM may also SEC. 8. Privatization of IPP Contracts Assumed
impose additional conditions in the by PSALM. –
shareholding agreement with the
winning bidders to ensure national (a) The IPP contracts assumed by PSALM shall
security, including, but not limited to, the be privatized taking into consideration
use of water during drought or calamity. buy out provisions, Government
performance undertakings and possible
(c) Consistent with Section 34 (d) of the bilateral renegotiations to minimize
Act, the NPC shall continue to be the liabilities of NPC and the National
responsible for watershed rehabilitation Government.
and management and shall be entitled to
the environmental charge equivalent to (b) Consistent with Section 75 of the Act,
one-fourth of one centavo per kilowatt- with respect to IPP-related contracts,
hour sales (P 0.0025/kWh), which shall nothing in these Rules shall be construed
form part of the Universal Charge. as:
This environmental fund shall be used
solely for watershed rehabilitation and (i) an implied waiver of any right, action
management and shall be managed by or claim, against any Person or entity,
NPC under existing arrangements. NPC of NPC or the National Government
shall submit an annual report to the DOE arising from or relating to any such
detailing the progress of the watershed contracts; or
rehabilitation program.
(ii) a conferment of new or better rights
(d) The NPC and PSALM or NIA, as the case to creditors and IPP contractors
may be, shall continue to be responsible in addition to subsisting rights
for the dam structure and all other granted by the NPC or the National
appurtenant structures necessary for Government under existing
the safe and reliable operation of the contracts.
hydropower plants. The NPC and PSALM
or NIA, as the case may be, shall enter (c) PSALM shall ensure that the Privatization
into an operations and maintenance of IPP contracts assumed by it shall not
agreement with the private operator cause an increase in the stranded costs to
of the power plant to cover the dam be absorbed by the National Government
structure and all other appurtenant and End-users.
facilities.
SEC. 9. Management and Operation of Agus
SEC. 7. Undisposed Generation Assets and and Pulangui Complexes. –
IPP Contracts of NPC. –
The Agus and Pulangui complexes shall be
(a) NPC may generate and sell electricity managed and operated by NPC for PSALM as
only from the undisposed generation a separate business unit, and shall have its
assets and IPP contracts of PSALM; and own organization and book of accounts.


PART V – OTHER PROVISIONS (c) The ERC shall ensure that all savings
realized from the reduction of said mark-
RULE 24. ELECTRIC POWER CRISIS ups shall be passed on to all End-users.
PROVISION
(d) All amended contracts shall be submitted
Upon the determination by the President of to the Power Commission for approval.
the Philippines of an imminent shortage of the
Supply of Electricity, Congress may authorize, RULE 27. ROYALTIES, RETURNS
through a joint resolution, the establishment [RENTALS] AND TAX RATES FOR
of additional generation capacity under such INDIGENOUS ENERGY RESOURCES
terms and conditions as it may approve.
The provisions of Section 79 of Commonwealth
RULE 25. REVIEW OF IPP CONTRACTS Act No. 137 (C.A. No. 137) and any law to
the contrary notwithstanding, the President
An inter-agency committee chaired by the of the Philippines shall reduce the royalties,
Secretary of DOF, with the Secretary of the returns [rentals] and taxes collected for the
DOJ and the Director General of the NEDA as exploitation of all indigenous sources of
members thereof is hereby created upon the energy, including but not limited to, natural
effectivity of the Act. The Committee shall gas and geothermal steam, so as to effect
immediately undertake a thorough review parity of tax treatment with the existing rates
of all IPP Contracts. In cases where such for imported coal, crude oil, bunker fuel and
contracts are found to have provisions which other imported fuels.
are grossly disadvantageous, or onerous to
the Government, the Committee shall, cause To this end, the DOF shall recommend to the
the appropriate government agency to file an President of the Philippines the issuance of
action under the arbitration clauses provided an Executive Order within thirty (30) calendar
in said contracts or initiate any appropriate days from the effectivity of these Rules.
action under Philippine laws. The PSALM
shall diligently seek to reduce stranded costs, To ensure lower rates for End-users, the ERC
if any. shall forthwith reduce the rates of power
from all indigenous sources of energy.
RULE 26. RENEGOTIATION OF POWER
PURCHASE AND ENERGY CONVERSION RULE 28. ENVIRONMENTAL PROTECTION
AGREEMENTS BETWEEN NPC AND PNOC-
EDC Pursuant to Section 65 of the Act, Electric
Power Industry Participants in the
(a) Pursuant to Section 69 of the Act, all generation, distribution and transmission
power purchase and energy conversion sub-sectors of the industry shall comply with
agreements between the PNOC-EDC all environmental laws, rules, regulations and
and NPC, including, but not limited to, standards promulgated by the DENR including,
the Palinpinon, Tongonan and Mt. Apo in appropriate cases, the establishment of an
Geothermal complexes, shall be reviewed environmental guarantee fund.
by the ERC within three (3) months from
the effectivity of the Act. RULE 29. BENEFITS TO HOST COMMUNITIES

(b) The ERC shall amend the terms of the Pursuant to Section 66 of the Act, the
agreements to remove any hidden costs obligations of Generation Companies and
or extraordinary mark-ups in the cost of energy resource developers to communities
power or steam above their true costs. hosting the Generation Facilities and/or
energy resource development projects as
defined under Chapter II, Section 289 to 294 of (f) Facilities owned or operated by a
the Republic Act No. 7160 (Local Government Distribution Utility;
Code) and Section 5 (i) of Republic Act No.
7638 (DOE Law) and their implementing rules (g) Self-Generation Facilities;
and regulations shall continue: Provided,
That the obligations mandated under Chapter (h) Facilities operating in EZs; and
II, Section 291 of the Local Government Code,
shall apply to privately-owned corporations (i) Integrated energy resource development
or entities utilizing the national wealth of the and Generation Facilities such as hydro,
locality. geothermal and coal.

A. RULES FOR THE BENEFITS TO HOST SEC. 3. Beneficiaries. –
COMMUNITIES PURSUANT TO SECTION
5 (i) OF REPUBLIC ACT 7638 Direct benefits shall be provided to the host
LGU, especially the community and people
SECTION 1. Scope of Application. – affected while equitable preferential benefits
shall be provided to the host region. Host LGU
This Rule shall apply to Generation Facilities or host region shall be understood as follows:
and/or energy resource development projects
located in all barangays, municipalities, cities, (a) With respect to Generation Facilities, in
provinces and regions. the case of power barges, the host LGU
or region is that where the power barge
SEC. 2. Obligation to Provide Financial is moored; in all other cases, the host LGU
Benefits. – or region is that where the Generation
Facility is physically located. Generation
The Generation Facilities and/or energy Facilities shall not include transmission
resource development facilities, such as but lines and substations.
not limited to the following, are required to
provide the financial benefits under Energy (b) With respect to energy resources:
Regulations No. 1-94 (E.R. 1-94) of the DOE:
(i) Coal. The host LGU or region is that
(a) Spin-off Facilities of NPC or their where the producing positive coal
transferees, including Generation reserve is located, as delineated by
Facilities owned by NPC transferred to detailed geophysical, geological and
PSALM and subsequently privatized exploration surveys.
pursuant to the Act;
(ii) Geothermal. The host LGU or
(b) Agus and Pulangui Complexes; region is that where the producing
geothermal reservoir is located
(c) Facilities owned and operated by NPC- as delineated by geochemical,
SPUG; geophysical, and exploration surveys.
“Producing geothermal reservoir”
(d) Facilities under BOT arrangement and refers to the subsurface geological
other variants with NPC (NPC IPPs), environment where the geothermal
NPC-SPUG, NIA, PNOC-EDC and other fluids accumulate and circulate,
government agencies; inclusive of the production and re-
injection/recharge zone.
(e) Facilities under BOT arrangement and
other variant with Distribution Utilities (iii) Hydro. The host LGU or region is
(IPPs of Distribution Utilities); that where the hydro reservoir is
located as delineated by detailed (b) Host barangay/s;
topographic, geological and geo-
technical investigations, reservoir (c) Host municipality/ies or
and dam height optimization studies, city/ies;
and as delineated by detailed ground
surveys. “Hydro reservoir” refers to (d) Host province/s;
either a natural lake or an artificial
lake created by the impounding of (e) Host region/s; and
stream flow, runoff and subsurface
water including but not limited (f) Other areas as may be
to intakes, diversion weirs and prioritized/determined by
transbasin underground tunnel the DOE.
which supplies water to a dam. It
also refers to where river or rivers (2) Twenty five percent of one
supply/ies water to a dam reservoir centavo per kilowatt-hour
through a transbasin underground (P 0.0025/kWh) of the total
tunnel to generate power. electricity sales as a development
and livelihood fund (DLF) to be
(iv) Petroleum/Natural Gas. The host applied in the following manner:
LGU or region is that where the
producing petroleum/natural gas (a) Designated resettlement
reservoir is located, as delineated by area/s – 5%
detailed geochemical, geophysical
exploration surveys. (b) Host barangay/s – 20%

SEC. 4. Nature of Benefits Provided under E.R. (c) Host municipality/ies or
1-94. – city/ies – 35%

(a) The Generation Company and/or energy (d) Host province/s – 30%
resource developer shall set aside one
centavo per kilowatt-hour (P 0.01/kWh) (e) Host region/s – 10%
of the total electricity sales as financial
benefit of the host communities of such In the absence of a designated
Generation Facility, where applicable. resettlement area/s, funds
allocated for the resettlement
(i) For a Generation Facility and/or shall form part of the host
energy resource located in a non- barangay/s.
highly urbanized city, the P 0.01/kWh
financial benefit shall be allocated as (3) Twenty five percent of
follows: one centavo per kilowatt-
hour (P 0.0025/kWh) of the
(1) Fifty percent of one centavo per total electricity sales as a
kilowatt-hour (P 0.005/kWh) of reforestation, watershed
the total electricity sales shall management, health and/or
be set aside as an electrification environment enhancement fund
fund (EF) to be applied in the (RWMHEEF) to be allocated in
following radiating order: the following manner:

(a) Designated resettlement (a) Designated resettlement
area/s; area/s – 5%
(b) Host barangay/s – 20% (h) Other areas as may be
prioritized/determined by
(c) Host municipality/ies or the DOE.
city/ies – 35%
(2) Twelve and one-half percent of
(d) Host province/s – 30% one centavo per kilowatthour (P
0.00125) as a DLF to be allocated
(e) Host region/s – 10% in the following manner:

In the absence of a designated (a) Designated resettlement
resettlement area/s, funds area/s – 10%
allocated for the resettlement
shall form part of the host (b) Host barangay/s – 30%
barangay/s.
(c) Host city/ies – 60%
(ii) For a Generation Facility and/or
energy resource located within a In the absence of designated
highly urbanized city, the P 0.01/kWh resettlement area/s,
financial benefit shall be allocated as funds allocated for the
follows: resettlement shall form part
of the host barangay/s.
(1) Seventy five percent of one
centavo per kilowatt-hour (3) Twelve and one-half percent of
(P 0.0075/kWh) of the total one centavo per kilowatthour
electricity sales of all Generation (P 0.00125) as a RWMHEEF to
Facilities located in a highly be allocated in the following
urbanized city shall be set aside manner:
into one account as an EF to be
applied in the following priority: (a) Designated resettlement
area/s – 10%
(a) Designated resettlement
area/s; (b) Host barangay/s – 30%

(b) Host barangay/s; (c) Host city/ies – 60%

(c) Host city/ies; In the absence of designated
resettlement area/s, funds
(d) Province/s nearest to the allocated for the resettlement
host city/ies; shall form part of the host
barangay/s.
(e) Region/s of the host city/ies;
(iii) In case of integrated hydroelectric
(f) Host communities of other generation projects with cascading
facilities with insufficient Generation Facilities, where the
electrification fund; Generation Facilities and energy
resource are located in different
(g) Areas traversed by municipalities/cities or provinces,
transmission lines and irrespective of its location, whether
substations or similar located in a highly urbanized city or
facilities; and non-highly urbanized city, allocation
of financial benefits shall follow (i) The projects to be funded under the
Section 4 (a) (i), hereof. The host advance financial assistance should
communities of the Generation be approved by the DOE consistent
Facilities and energy resource with E.R. 1-94.
development projects shall equally
divide said financial benefits. (ii) The total financial assistance to be
The host municipality/city of the amortized at a rate of twenty percent
Generation Facility adjacent to the (20%) from the accrued financial
energy resource shall in no case be a benefits shall be based on the actual
host to both said Generation Facility amount spent for the project/s
and energy resource. validated by the DOE.

(b) All interest earnings from EF, DLF, (iii) Amortization of financial assistance
RWMHEEF shall be set aside into shall commence from the next
one trust account to be utilized for quarter billing, after the DOE
the electrification projects of the has issued a validated report on
communities in the following order of the actual amount spent for the
priority: project/s.

(i) Direct host barangay/s, and host SEC. 5. Establishment of Trust Accounts. –
municipality/ies or city/ies with
insufficient accrued EF; The DOE shall establish trust accounts specific
for EF, DLF, RWMHEEF in the name of the DOE
(ii) Areas traversed by transmission and the Generation Facilities or Generation
lines, and sub-stations or similar Company and/or energy resource developer.
facilities; For purposes of said establishment, the
Generation Company and/or energy resource
(iii) Areas not directly connected to the developer shall submit a report that contains
Grid or national transmission system the following data:
which include isolated or remote
communities; and (a) Actual generation, station/own service
use, system loss, and electricity sales in
(iv) Other areas as may be prioritized/ kilowatt-hour;
determined by the DOE.
(b) Accrued benefits due to the host LGU and
(c) The financial assistance advanced by host region derived from Section 5 (a)
the Generation Company and energy hereof;
resource developer during its pre-
operation stage or before the start of the (c) Details of benefits and/or financial
commercial operations for the purpose assistance advanced to the host LGU and
of securing favorable endorsement from host region, if any; and
the community and people affected,
after Republic Act 7638 (DOE Law) has (d) Such other information, which the DOE
become effective or pursuant to this may deem necessary for review and audit
Rule, shall be credited by the Generation purposes.
Company, energy resource developer or
their successors-in-interest against the SEC. 6. Project Implementation and Approval.
accrued financial benefits based on the –
following criteria:

The evaluation and approval of project developer shall make the appropriate
proposals/work programs endorsed by endorsement of annual work programs/
the host LGU and host region through the project proposals to the DOE for further
Generation Company and/or energy resource review and approval. The review and
developer shall strictly be guided by the approval of annual work programs/
following procedures: project proposals shall be completed by
DOE within twenty (20) working days
(a) The Generation Company and/or upon receipt of complete documentation.
energy resource developer, through its Thereafter, project implementation shall
designated Community Relations Officer proceed as prescribed under Sub-section
(COMREL) shall assist the host LGU (f) (i), hereof.
and host region in the preparation of
annual work programs/project proposals (d) For reforestation and watershed
qualified by the DOE to be implemented management projects, work programs/
in any given year. The amount of financial project proposals should be coordinated
benefits accruing to the pertinent funds and endorsed by the DENR Regional
in the immediate preceding year shall be Office or the watershed management
used as basis in the preparation of annual administrator in the area.
work programs/project proposals. The
said annual work programs/project (e) For electrification programs, the
proposals shall be submitted by the Generation Company and/or energy
Generation Company and/or energy resource developer shall coordinate
resource developer to the DOE not later with the concerned Distribution Utility
than March 15 of every year. in the development of said program
for the barangays energization and
(b) All work programs/project proposals for prioritization in any given year. The
DLF and RWMHEEF shall be implemented annual electrification programs shall be
within one (1) year upon receipt of funds. directly forwarded to DOE for review and
Said work programs/project proposals evaluation. The NEA shall assist the ECs
shall be implemented, supervised and in the preparation of documents such as
administered by the concerned LGU. but not limited to the staking sheets or
single line diagrams and cost estimates.
(c) The Generation Company and/or energy Thereafter, project implementation shall
resource developer shall review the proceed as prescribed under Sub-section
work programs/project proposals on (f) (ii), hereof. The electrification projects
development, livelihood, reforestation, may be undertaken by the Distribution
watershed management, health and/ Utility or the Generation Company and/
or environment enhancement duly or energy resource developer or their
endorsed by the host LGU and host accredited contractors, herein referred
region through a resolution passed by to as project implementor.
its Sanggunian or Regional Development
Council. In the case of official resettlement (f) Upon submission of complete documents
area, work programs/project proposals of the work programs/project proposals,
may be endorsed by the resettlement project implementation shall proceed in
organization, association or cooperative any of the following manner:
duly certified by the Generation Company
and/or energy resource developer (i) For development, livelihood,
and registered under the concerned reforestation, watershed
government agencies. The Generation management, health and/or
Company and/or energy resource environment enhancement projects,
a Memorandum of Agreement (a) The administration of EF, DLF, RWMHEEF
(MOA) shall be entered into by shall be undertaken by the DOE. All funds
and among the DOE, Generation administered by NPC with regard to DLF
Company and/or energy resource and RWMHEEF shall be transferred
developer, and the concerned LGU to to DOE for administration within one
effect funds commitment and project hundred twenty (120) days from the
implementation. The DOE shall then effectivity of these Rules.
make the necessary fund allocation
and shall forthwith release the project Thereafter, all MOA entered into by DOE
funds directly to the concerned host and NPC on the establishment of trust
LGU or host region within fifteen (15) accounts shall be amended to reflect
days upon submission of complete transfer of responsibilities to NPC-
supporting documents pursuant to successors, transferees and/or assignees
the provisions in the MOA. or IPPs.

(ii) For electrification projects, a MOA (b) The obligation of the Generation
shall be entered into by and among Companies to DOE with regard to the
the DOE, the concerned Distribution remittance of funds shall be settled in the
Utility/project implementor, following manner:
Generation Company and/or
energy resource developer to effect (i) For NPC-IPPs, if applicable, to settle
funds commitment and project all obligations before issuance of
implementation. The DOE shall then COC/registration certificate by ERC.
make the necessary fund allocation
and shall forthwith release the (ii) For NPC, if applicable, to settle all
funds to the franchised Distribution obligations before Privatization/
Utility/project implementor within sale and transfer of IPP contracts to
fifteen (15) days upon submission PSALM.
of complete supporting documents
pursuant to the provisions in the (iii) For IPPs of Distribution Utilities
MOA. with an outstanding financial
obligation with the DOE pursuant to
For projects to be undertaken by Department Circular No. 2000-03-03
contract, initial release of fund shall shall settle its account within one (1)
be equivalent to fifteen percent year upon effectivity of these Rules.
(15%) of the total approved project
cost. Subsequent release of fund (iv) After thorough investigation, non-
balance shall be based on the remittance of the Generation
result of qualified lowest bid cost. Company and/or energy resource
For projects to be undertaken by developer of the financial benefits
administration, total approved due to the host communities shall be
project cost shall be released upon a ground for DOE’s recommendation
signing of the MOA. to ERC for appropriate action and
reasonable measures in accordance
(g) All funds disbursements shall follow with ERC rules and regulations.
government accounting and auditing
rules and regulations. SEC. 8. Audit of Financial Benefits and Project
Monitoring. –
SEC. 7. Administration of Trust Accounts. –

(a) The DOE shall review and audit the SEC. 2. Amount of Share of Local Government
source of fund, particularly on the total Units. –
electricity sales of the Generation Facility
to determine the financial benefits due Any government agency or government-
to the host LGUs and host regions. owned or controlled corporation and private
corporation or entities engaged in the
(b) The DOE shall conduct financial and utilization and development of the national
technical audit to monitor compliance wealth are required to provide share to the
by the LGU and region with regard to host LGUs, based on the preceding fiscal
the implementation of the projects. In year of the proceeds, based on the following
the event of unjustified disbursement of formula, whichever will produce a share
fund and non-completion or delay in the higher for the LGU:
implementation of projects by the LGU
or region concerned and the Distribution (a) One percent (1%) of the gross sales or
Utility/project implementor, the DOE receipts of the preceding calendar year;
shall defer the releases of funds and or
take appropriate reasonable measures in
accordance with any existing and future (b) Forty percent (40%) of the national wealth
government rules and regulations until taxes, royalties, fees or charges derived by
such time that the LGU or region and the government agency or government
franchised Distribution Utility/project owned and controlled corporation and
implementor would be able to justify privately-owned corporation or entities.
disbursement of funds to the satisfaction
of the DOE or deputized/resident auditor SEC. 3. Nature of Benefits. –
of the Commission on Audit (COA).
(a) Eighty percent (80%) of the proceeds
SEC. 9. Other Provisions. – shall be applied solely to lower the cost
of electricity either through subsidy or
(a) The application of this Rule 27 (A) shall non-subsidy scheme or combination of
take effect upon effectivity of these Rules. both.

(b) Any provision in E.R. 1-94, its amendments (i) Non-subsidy scheme may take
and other related issuances and their the form but not limited to
amendments that are inconsistent with electrification, technical upgrading
these Rules are hereby superseded, and rehabilitation of distribution
modified or amended accordingly. lines to reduce electricity losses,
use of energy saving devices,
B. RULES FOR THE BENEFITS TO HOST and support of the infrastructure
COMMUNITIES PURSUANT TO CHAPTER facilities servicing the needs of the
II, SECTIONS 289 TO 294 OF THE LOCAL public which can all redound to the
GOVERNMENT CODE reduction of the electricity rate of
the area.
SECTION 1. Scope of Application. –
(ii) Subsidy scheme will be directly
The LGUs hosting the national wealth shall utilized to subsidize cost of power
have an equitable share in the proceeds used by the consumers. This may be
derived from the utilization and development applied with or without ceiling or at
of national wealth, including sharing the same graduated rates (per kWh per level
with the inhabitants by way of direct benefits. of consumption) in the following

form which the host LGU may choose follows:
from.
(i) Host barangay – 35%
(1) Subsidy per customer, an equal
or predetermined level or rate of (ii) Host component city/municipality –
subsidy per qualified customer: 45%

(a) All consumer types; (iii) Host province – 20%

(b) Residential consumer only; (b) For energy resource located in a highly
and urbanized or independent component
city, share shall be appropriated as
(c) Other preferred types of follows:
consumer combinations,
such as: commercial, (i) Host barangay – 35%
industrial, public buildings,
irrigation/communal water (ii) Host city – 65%
system, streetlights, etc.
(c) For energy resource located in two (2)
(2) Subsidy of power consumption, or more provinces, or in two (2) or more
which amount of subsidy municipalities/cities or two (2) or more
depends on the magnitude of barangays, their respective shares shall
power consumption of qualified be appropriated on the basis of the
consumers: following:

(a) All consumer types; (i) population – seventy percent (70%);
and
(b) Residential consumer only;
and (ii) land area – thirty percent (30%)

(c) Other preferred types of Where the land area is the area of
consumer combinations, the host barangays found within the
such as, commercial, technically delineated energy resource
industrial, public buildings, area and where the population refers to
irrigation/communal water the population of host barangays found
system, streetlights, etc. wholly or partially within the technically
delineated energy resource.
(b) Twenty percent (20%) of the proceeds
shall be utilized for the development SEC. 5. Monitoring. –
and livelihood projects which shall
be appropriated by their respective (a) The Department of Interior and Local
Sanggunian. Government (DILG) shall monitor the
compliance of host LGUs. To assist in the
SEC. 4. Allocation of Shares. – monitoring of compliance, all host LGUs
of energy projects are required to submit
The amount of share of the LGUs shall be the following:
distributed in the following manner:
(i) The scheme of electricity rate
(a) For energy resource located in the reduction adopted by the host LGU
province, share shall be appropriated as (with proper documentation) based
on the prescription in the DILG-DOE SEC. 2. Scope of Application. –
Joint Circular 95-01 dated 31 October
1995 at the start of the use of fund or This Rule shall apply to all Distribution
upon the amendment of scheme by Utilities.
the respective LGU councils; and
SEC. 3. Terms and Conditions of the TSCs. –
(ii) Summary of transactions thirty (30)
days after end of each quarter. (a) The TSCs shall contain the terms and
conditions of supply and a corresponding
The DILG shall furnish the DOE the schedule of rates, consistent with
above information within fifteen (15) the provision of the Act, including
days from the date of the reporting adjustments and/or indexation formulas
period. which shall apply during the term of such
contracts.
(b) The COA shall conduct yearly audit of the
national wealth proceeds consistent with (b) The term of the TSCs shall not extend
its responsibility to examine all accounts beyond one (1) year from the introduction
pertaining to uses of funds and property of Open Access.
owned or held in trust by the government
or any of its agencies as mandated under (c) Such contracts shall be based on the
Section 2 of Presidential Decree No. 1445 projected demand of the Distribution
of 1976. Utilities less any of their currently
committed quantities under eligible
(c) In the event of violation or non- contracts, if any, as defined in Section 33
compliance with the provisions of the of the Act.
DILG-DOE Joint Circulars 95-01 and 98-
01, and other relevant issuances, the (d) The total generation capacity of such
DILG may, upon prior notice and hearing, signed TSCs shall not exceed the level of
order the project proponent the non- NPC owned, controlled, or committed
remittance of the royalty payment to the capacity as of the effectivity of the Act.
host LGU concerned pending completion
of the investigation of the concerned LGU (e) The TSCs shall be assignable to the NPC
if the project proponent is a GOCC; or successor Generation Companies.
notify the DBM regarding such violation
and order the non-release of the LGU (f) Notwithstanding the provisions of
shares if the project proponent is a Section 25 of the Act, the rates charged
private company. The unremitted funds by a Distribution Utility for the generation
shall be deposited in a government bank component of the Supply of Electricity
under escrow. in the Retail Rate shall, for the term of
the TSCs, not exceed the TSC rates, as
RULE 30. NPC OFFER OF TRANSITION updated monthly.
SUPPLY CONTRACTS
(g) The recovery of costs incurred by a
SECTION 1. Guiding Principle. – Distribution Utility for any generation
component in excess of the TSC rates
Pursuant to Section 67 of the Act, NPC shall, shall be disallowed by the ERC except
within six (6) months from the effectivity for eligible contracts and mandated
of the Act, file with the ERC for its approval purchases from the WESM.
the transition supply contracts (TSCs) duly
negotiated with the Distribution Utilities.
(h) The limitation on the recovery of consider, among others, firm and non-
generation component costs by a firm capacities, standards specified in the
Distribution Utility shall apply only to Grid and Distribution Codes, and other
the equivalent quality and quantity of similar criteria as may be determined by
electricity still available to the Distribution the ERC.
Utility from NPC.
RULE 31. DEBTS OF ELECTRIC
SEC. 4. TSCs Approval and Monitoring. – COOPERATIVES (ECs)

(a) Within six (6) months from the date of SECTION 1. Guiding Principle. –
submission of the TSC by the NPC, the
ERC shall notify NPC of their approval of Pursuant to Section 60 of the Act, all
the rates contained therein. outstanding financial obligations of ECs to
NEA and other government agencies incurred
(b) The ERC shall maintain a record of the for the purpose of financing the Rural
contract terms and rates offered by NPC. Electrification Program shall be assumed by
the PSALM in accordance with the program
(c) The ERC shall update monthly the rates approved by the President of the Philippines.
using the appropriate adjustment and/or
indexation formula. SEC. 2. Scope. –

SEC. 5. Recovery of Generation Component This Rule shall cover all outstanding financial
by Distribution Utility. – obligations by the ECs to NEA and other
government agencies, incurred as of 26 June
Notwithstanding the provisions of Section 25 2001 for the purpose of financing the Rural
of the Act, the rates charged by a Distribution Electrification Program.
Utility for the generation component of the
Supply of Electricity in its Retail Rates shall, Financial obligation shall refer to the
for the term of the TSC, not exceed the indebtedness, whether through regular or
generation component of the TSC rates, as restructured loans, liabilities, or amounts
updated monthly. payable by the ECs to NEA and other
government agencies as of 26 June 2001, to
(a) Recovery of cost incurred by a finance their rural electrification projects,
Distribution Utility for any generation subject to the terms and conditions of duly-
component in excess of the TSC rates executed loan and mortgage contracts
shall not be allowed, except for eligible between NEA and/or other government
contracts approved by the ERC for the agencies, as creditors and the ECs, as debtors/
recovery of Stranded Contract Costs of borrowers.
Eligible Contracts of Distribution Utilities
as provided in Section 33 of the Act and SEC. 3. Condonation of Debts of ECs. –
mandated purchases from the WESM.
From the effectivity of the Act, all outstanding
(b) The limitation on the recovery of financial obligations of ECs to NEA and
generation component costs by a other government agencies incurred for the
Distribution Utility shall apply only to purpose of financing the Rural Electrification
the equivalent quality and quantity of Program shall be assumed by the PSALM in
electricity still available to the Distribution accordance with the program approved by
Utility from NPC. For purposes of the the President of the Philippines within one (1)
determination of equivalent quality year from the effectivity of the Act which shall
and quantity of electricity, the ERC shall be implemented and completed within three
(3) years from the effectivity of the Act. (e) DOE; and

These debts shall include all outstanding (f) LGUs.
financial obligations incurred by the ECs
Provided, however, That such loans were
for the purpose of financing the Rural
contracted in accordance with NEA policies
Electrification Program, exclusively utilized
and with prior NEA authorization, except for
for capital expenditures for the acquisition
loans transferred to APT, now PMO.
or construction, operation and maintenance,

and/or expansion and rehabilitation of
SEC. 5. Transfer of Ownership or Control of
distribution, generation and Subtransmission
Assets, Franchise or Operation. –
Assets/facilities and pre-operating expenses

for newly-established ECs: Provided, however,
Within five (5) years from the completed
That such outstanding financial obligations
Condonation of debt, any EC which shall
shall include interest, surcharges and penalties
transfer ownership or Control of its assets,
on ECs’ Rural Electrification Loans, released
franchise or operations shall repay PSALM
from NEA and other government agencies to
the total debts, including accrued interest
ECs as of 26 June 2001; duly booked by NEA,
thereon: Provided, however, That the ECs
validated by COA, and confirmed by the ECs.
may enter into loan or financing agreements

to allow flexibility in sourcing funds and
SEC. 4. Assumption of EC Loans by PSALM. –
improvement and management system for

needed rehabilitation and modernization
PSALM shall assume all outstanding financial
programs: Provided, further, That it does not
obligations of the ECs to NEA and other
involve permanent transfer or Control of the
government agencies incurred for the purpose
assets, franchise and operations: Provided,
of financing the Rural Electrification Program;
finally, That DOF and NEA shall jointly issue
such outstanding financial obligations of the
the necessary guidelines to protect the
ECs involving “Rural Electrification Loans”
member-consumers of the ECs involved.
shall be determined in accordance with the
program approved by the President of the SEC. 6. Reduction in ECs’ Rates. –
Philippines. Correspondingly, having assumed
the ECs’ obligations, the PSALM shall repay The ERC shall ensure a reduction in the
NEA and the other government agencies, in rates of ECs commensurate with the
accordance with a prescribed amortization resulting savings due to the removal of the
schedule agreed between the parties. amortization payments of their loans and for
this purpose, NEA shall assist the ECs in their
The outstanding financial obligations from rate formulation consistent with the program
other government agencies referred to in approved by the President of the Philippines.
Section 60 of the Act shall include loans
contracted from the following: Nothing in this Rule however, shall mean
that ECs are not obliged to pay the NEA with
(a) Development Bank of the Philippines respect to all outstanding financial obligations
(DBP); assumed by PSALM, if the amortization cost
component of the EC’s tariff is still collected
(b) Land Bank of the Philippines (LBP);
from the consumers.
(c) Asset Privatization Trust (APT) now
Privatization and Management Office SEC. 7. Reporting, Accounting and Audit
(PMO); Procedures. –

(d) NPC, for loans on taken-over systems, NEA shall have the responsibility for the
excluding power bills; accounting of all outstanding financial
obligations of ECs from NEA that will be This Rule shall apply to affected personnel of
assumed by PSALM. Thereafter, NEA shall DOE, ERB, NEA and NPC.
render reports and submit the same to
PSALM. SEC. 3. Separation and Other Benefits. –

PSALM shall have the right to conduct (a) The separation benefit shall consist of
final audit of all the outstanding financial either a separation pay and other benefits
obligations of ECs in accordance with existing granted in accordance with existing laws,
accounting and auditing rules and regulations, rules and regulations or a separation
before the same can be considered for final plan equivalent to one and one half (1-½)
assumption. Likewise, PSALM shall submit months’ salary for every year of service
annual progress reports to the DOF on the in the government, whichever is higher:
status of ECs’ loans that were assumed and Provided, That the separated or displaced
subsequently condoned. employee has rendered at least one (1)
year of service at the time of effectivity
RULE 32. FISCAL PRUDENCE of the Act.

(a) Pursuant to Section 64 of the Act, the (b) The following shall govern the application
creation of new positions and the levels of Section 3 (a) of this Rule:
of or increases in salaries and all other
emoluments and benefits of TRANSCO (i) With respect to NPC officials and
and PSALM personnel shall be subject employees, they shall be considered
to the approval of the President of the legally terminated and shall be
Philippines. entitled to the benefits or separation
pay provided in Section 3 (a) herein
(b) Likewise, the compensation and all when the restructuring plan as
other emoluments and benefits of the approved by the NPC Board shall
officials and members of the Board of have been implemented.
TRANSCO and PSALM shall be subject
to the approval of the President of the (ii) With respect to NEA officials and
Philippines. employees, they shall be considered
legally terminated and shall be
RULE 33. SEPARATION BENEFITS entitled to the benefits or separation
pay provided in Section 3 (a) herein
SECTION 1. General Statement on Coverage. when a restructuring of NEA is
– implemented pursuant to a law
enacted by Congress or pursuant
This Rule shall apply to all employees in the to Section 5 (a) (5) of Presidential
National Government service as of 26 June Decree No. 269.
2001 regardless of position, designation or
status, who are displaced or separated from (iii) With respect to the affected
the service as a result of the Restructuring Bureaus of the DOE, their officials
of the electricity industry and Privatization and employees shall be considered
of NPC assets: Provided, however, That the legally terminated and shall be
coverage for casual or contractual employees entitled to the benefits or separation
shall be limited to those whose appointments pay provided in Section 3 (a) herein
were approved or attested by the Civil Service when the re-organizational plan shall
Commission (CSC). have been implemented as a result
of the Restructuring of the electric
SEC. 2. Scope of Application. – power industry.
(c) The governing board or authority of general fund, as the case may be.
the entities enumerated in Section 3 (b)
hereof shall have the sole prerogative The Buyer or Concessionaire or the successor
to hire the separated employees as company shall not be liable for the payment
new employees who start their service of the separation pay.
anew for such positions and for such
compensation as may be determined SEC. 5. Preferential Rights of Employees. –
by such board or authority pursuant to
its restructuring program. Those who Displaced or separated personnel as a result
avail of the foregoing privileges shall of the Restructuring of the electric power
start their government service anew if industry and Privatization of NPC assets shall
absorbed by any government agency be given preference in the hiring of manpower
or any government-owned successor requirements of the newly-created offices or
company. the privatized companies: Provided, That
the displaced or separated personnel meet
(d) In no case shall there be any diminution the prescribed qualifications. With respect
of benefits under the separation plan to employees who are not retained by NPC,
until the full implementation of the the government, through the Department of
Restructuring of the electric power Labor and Employment (DOLE), shall endeavor
industry and the Privatization of NPC to implement re-training, job counseling, and
assets in accordance with the approved job placement programs.
Restructuring and Privatization schedule.
SEC. 6. Implementation. –
(e) For this purpose, “Salary,” as a rule, refers
to the basic pay including the thirteenth The DOE, NEA, and NPC, shall issue guidelines
(13th) month pay received by an applicable to their respective employees to
employee pursuant to his appointment, implement this Rule within ninety (90) days
excluding per diems, bonuses, overtime from effectivity of these Rules: Provided,
pay, honoraria, allowances and any other That in the case of ERC, the independent
emoluments received in addition to the quasi-judicial body created under the Act, the
basic pay under existing laws. manner of, and timetable for, implementation
of its organization shall be governed by
(f) Likewise, “Separation” or “Displacement” Section 38 and Section 39 of the Act.
refers to the severance of employment
of any official or employee, who is RULE 34. EDUCATION AND PROTECTION OF
neither qualified under existing laws, END-USERS
rules and regulations nor has opted to
retire under existing laws, as a result of SECTION 1. Guiding Principle. –
the Restructuring of the electric power
industry or Privatization of NPC assets Consistent with the declared policy that
pursuant to the Act. the State shall protect the public interest
as it is affected by the rates and services
SEC. 4. Funding. – of electric utilities and other providers of
electric power, and pursuant to Section 76 of
Funds necessary to cover the separation pay the Act, the public shall be educated on the
under this Rule shall be provided either by the Restructuring of the electric power industry
Government Service Insurance System (GSIS) and Privatization of NPC.
or from the corporate funds of the NEA or the
NPC, as the case may be; and in the case of SEC. 2. Consumer Education. –
the DOE and the ERB, by the GSIS or from the
The DOE shall undertake, in coordination purpose of fixing rates or fees at least
with the ERC, NPC, NEA and the Department twice for two (2) successive weeks in two
of Education (DepEd), DTI, Office of (2) newspapers of nationwide circulation.
the Press Secretary (OPS) – Philippine
Information Agency (PIA), the academe, RULE 35. FINES AND PENALTIES
and the non-government organizations and
consumer groups or associations, continuing Pursuant to Section 46 of the Act, the
information, education and communication following are the fines and penalties:
program for consumers. This shall include,
but not be limited to, the following: (a) The fines and penalties that shall be
imposed by the ERC for any violation
(a) Industry Restructuring and NPC of or non-compliance with the Act or
Privatization; these Rules shall range from a minimum
of Fifty Thousand Pesos (P 50,000.00)
(b) Implementation of Retail Competition to a maximum of Fifty Million Pesos (P
and Open Access and their impact on End- 50,000,000.00).
users and on the proper use of electric
power. It shall include the existence of (b) Any Person who is found guilty of any of
competitive electricity suppliers, choice the prohibited acts pursuant to Section
of competitive electricity services, 45 of the Act shall suffer the penalty of
regulated transmission and distribution prision mayor and a fine ranging from
services, systems reliability, aggregation, Ten Thousand Pesos (P 10,000.00) to Ten
market, itemized billing, Stranded Cost, Million Pesos (P10,000,000.00), or both,
uniform disclosure requirements, low at the discretion of the court.
income bill payment, energy conservation
and safety measures, among other topics; (c) The members of the Board of Directors
and of the juridical companies participating in
or covered in the Generation Companies,
(c) Implementation of these Rules. the Distribution Utilities, the TRANSCO or
its Buyer or Concessionaire or Supplier
SEC. 3. Consumer Protection. – who violate the provisions of the Act may
be fined by an amount not exceeding
The ERC shall ensure consumer choice and double the amount of damages caused
promote consumer interests. It shall issue by the offender or by imprisonment from
the appropriate guidelines and mechanisms one (1) year or two (2) years or both at
to handle the following: the discretion of the court. This Rule
shall apply to the members of the Board
(a) Speedy resolution of consumer who knowingly or by neglect allows the
complaints; commission or omission under the law.

(b) Creation of a permanent consumer (d) If the offender is a government official
complaint desk at ERC and in all electric or employee, he shall, in addition, be
utilities and other providers of electric dismissed from the government service
power to oversee the promotion of with prejudice to reinstatement and with
consumer interests; and perpetual or temporary disqualification
from holding any elective or appointive
(c) Dissemination of rate-related resolutions, office.
including posting in the ERC website and
the publication of all notices of hearings (e) If the offender is an alien, he may, in
to be conducted by the ERC for the addition to the penalties prescribed, be
deported without further proceedings of the Act.
after service of sentence.
PART VI – FINAL PROVISIONS
(f) Any case which involves question of
fact shall be appealable to the Court of RULE 36. SEPARABILITY CLAUSE
Appeals and those which involve question
of law shall be directly appealable to the Should any provision herein be subsequently
Supreme Court. declared unconstitutional, the same shall not
affect the validity or the legality of the other
(g) The administrative sanction that may provisions.
be imposed by the ERC shall be without
prejudice to the filing of a criminal action, RULE 37. EFFECTIVITY
if warranted.
These Rules shall take effect on the fifteenth
(h) To ensure compliance with the Act, (15th) day from the date of its publication
the penalty of prision correccional or a in the Official Gazette or in at least two (2)
fine ranging from Five Thousand Pesos newspapers of general circulation.
(P 5,000.00) to Five Million Pesos (P
5,000,000.00), or both, at the discretion February 27, 2002, Fort Bonifacio, Taguig,
of the court, shall be imposed on any Metro Manila
Person, including, but not limited to,
the president, member of the board, VICENTE S. PÉREZ, JR.
chief executive officer or chief operating Secretary
officer of the corporation, partnership, or
any other entity involved, found guilty of APPROVED BY
violating or refusing to comply with any THE JOINT CONGRESSIONAL POWER
provision of the Act or these Rules, other COMMISSION
than those provided herein. THIS 27th DAY OF FEBRUARY 2002

(i) Any party to an administrative proceeding SEN. RENATO “COMPAÑERO” L. CAYETANO
may, at any time, make an offer to the Co-Chairman, Senate Panel
ERC, conditionally or otherwise, for a
consented decree, voluntary compliance REP. ALIPIO CIRILO V. BADELLES
or desistance and other settlement of Co-Chairman, House of Representatives
the case. The offer and any or all of the
ultimate facts upon which the offer is SEN. JOHN H. OSMEÑA
based shall be considered for settlement Vice-Chairman
purposes only and shall not be used
as evidence against any party for any REP. FLORENCIO B. ABAD
other purpose and shall not constitute Vice-Chairman
an admission by the party making the
offer of any violation of the laws, rules, SEN. JOKER P. ARROYO
regulations, orders and resolutions of the Member
ERC, nor as a waiver to file any warranted
criminal actions. REP. JULIO A. LEDESMA IV
Member
(j) In addition, Congress may, upon
recommendation of the DOE and/or ERC, SEN. FRANCIS N. PANGILINAN
revoke such franchise or privilege granted Member
to the party who violated the provisions
REP. RUY ELIAS C. LOPEZ
Member REP. FAYSAH MANIRI-RACMAN DUMARPA
Member
SEN. AQUILINO Q. PIMENTEL JR.
Member SEN. SERGIO R. OSMEÑA III
Member
REP. AUGUSTO H. BACULIO
Member REP. CONSTANTINO G. JARAULA
Member
SEN. TERESA AQUINO ORETA
Member
RULES AND REGULATIONS IMPLEMENTING SECTION 28 OF REPUBLIC ACT NO. 9136,

OTHERWISE KNOWN AS THE ELECTRIC POWER INDUSTRY ACT OF 2001
Consistent with the constitutional mandate for (d) “Dispersal of Ownership” shall refer to
dispersal of ownership and de-monopolization the sale, transfer or other modes of
of public utilities as enunciated under Section disposition of the stock ownership of
28 of Republic Act No. 9136, otherwise known persons, natural or juridical, including
as the Electric Power Industry Act of 2001, directors, officers, stockholders and their
the Energy Regulatory Commission hereby related interests in a distribution utility
adopts and promulgates the following rules and their respective holding companies;
and regulations to implement the aforesaid
section. (e) “Distribution Utility” shall refer to any
electric cooperative, private corporation,
SECTION 1. Definition of Terms. – As used in government-owned utility or existing local
these Rules: government unit which has an exclusive
franchise to operate a distribution system
(a) “Common Share of Stock” shall refer in accordance with R.A. 9136;
to the evidence of ownership in a stock
corporation with complete voting rights; (f) “Electric Cooperative” shall
refer to a distribution utility
(b) “Controlling Stockholders” shall refer organized pursuant to Presidential
to the stockholders, natural or juridical, Decree No. 269, as amended, or as
singly or collectively with related otherwise provided in R.A. 9136;
interests, owning more than 25% of the
voting shares of a distribution utility. (g) “Energy Regulatory Board (ERB)” shall
refer to the independent quasi-judicial
(c) “De-monopolization” shall refer to regulatory body created under Executive
the process of removing control by a Order No. 172, as amended;
stockholder and related interests in a
distribution utility through sale, transfer (h) “Energy Regulatory Commission (ERC)”
or other modes of disposition of their shall refer to the independent quasi-
stockholding in excess of the ceiling judicial regulatory body created under
prescribed under R.A. 9136; R.A. 9136;

(i) “Holding Company” shall refer to a SEC. 3. Divestment of Shareholdings in
juridical person holding more than 25% Distribution Utilities. – The holdings of
of the voting stocks of a distribution any person, natural or juridical, including
utility; directors, officers, stockholders and their
related interests in a distribution utility and
(j) “Person” shall refer to any being, natural their respective holding companies shall not
or juridical, capable of possessing legal exceed twenty-five (25%) percent of the total
rights and obligations, or of being the voting shares of stock.
subject of legal relations;
Any holding in excess of the ceiling prescribed
(k) “Philippine Stock Exchange (PSE)” shall herein shall be divested in accordance with
refer to an entity created under the these Rules.
Revised Securities Act to manage the
trading of shares of stocks of listed SEC. 4. Exemption from Divestment of
corporations; Shareholdings. – The provisions of the
preceding section shall not apply to a
(l) “Public Utility” as referred to herein shall distribution utility or the company holding
mean a distribution company which has the shares or its controlling stockholder/s
been granted a franchise by the Congress whose shares are already listed on the PSE at
of the Philippines and a Certificate of the time of the effectivity of R.A. 9136.
Public Convenience and Necessity (CPCN)
by the Energy Regulatory Board or the SEC. 5. Period of Divestment for Distribution
Energy Regulatory Commission. This Companies. – Distribution Companies
term shall likewise refer to an electric with peak demand of more than 10 MW,
cooperative with existing franchise whose directors, officers, stockholders and
granted by the National Electrification their related interests together with their
Administration (NEA) subject to the respective holding companies, own more
provisions of Section 27 of R.A. 9136; than twenty-five (25%) percent of the total
voting shares of stocks, are hereby directed
(m) “Related Interests” shall refer to either a to cause the listing of their common shares of
natural person related within the fourth stock on the PSE within three (3) years from
civil degree of consanguinity or affinity the effectivity of these Rules but not later
to a director, officer or stockholder of than five (5) years from the effectivity of R.A.
a distribution company, or to juridical 9136.
persons affiliated to each other through
common business interest or belonging Small Distribution Companies whose
to a business group where the holdings directors, officers, stockholders and their
of the stockholders altogether constitute related interests together with their
a majority or control in one (1) or more respective holding companies own more
enterprises; than twenty-five (25%) percent of the total
voting shares of stock are required to list their
(n) “Small Distribution Company” shall refer shares on the PSE within five (5) years from
to a distribution facility whose peak the effectivity of R.A. 9136.
demand is equal to or less than ten (10)
MW. Small Distribution Companies which, after
the date of effectivity of R.A. 9136, shall have
SEC. 2. Coverage. – These Rules shall apply to new directors, officers, stockholders and
all private distribution utilities except electric their related interests together with their
cooperatives. respective holding companies owning more

than twenty-five (25%) percent of their total shall, within sixty (60) days upon listing of
voting shares of stock shall undertake such their common shares of stock on the PSE,
listing within five (5) years from the time said submit reports to the ERC on the extent
stockholders acquire ownership and control of their compliance herewith together
over the companies. with Certifications from the PSE showing
the number of shares listed, names of the
The requirements of the preceding paragraphs shareholders presently owning the said
shall be deemed to have been complied with shares and other relevant informations for
if the company holding their shares or the monitoring and verification purposes.
controlling stockholders have already caused
the listing of their shares on the PSE within SEC. 9. Imposition of Fines and Penalties. –
the period above prescribed. Any person, natural or juridical, found guilty
of violating these rules and regulations shall
SEC. 6. Registration of Securities. – Unless be subject to the penalties provided under
exempted, all stocks and securities of Section 46 of R.A. 9136.
distribution utilities must be registered with
the Securities and Exchange Commission SEC. 10. Separability Clause. – If for any
(SEC), prior to their listing on the PSE. reason, any section of these Rules is declared
unconstitutional or invalid, the other parts
The registration of stocks and securities shall or sections hereof which are not affected
be subject to the existing rules and regulations thereby shall continue to be in full force and
of the SEC. effect.

SEC. 7. PSE Listing. – The registered SEC. 11. Effectivity Clause. – These
voting stocks and securities of distribution Implementing Rules and Regulations
utilities covered by these Rules shall shall take effect on the fifteenth (15th)
be listed on the PSE in accordance with day following its publication in two
its applicable rules and regulations. (2) newspapers of general circulation.

SEC. 8. Reportorial Requirements. – Pasig City, August 24, 2001.
Distribution utilities covered by these Rules
AMENDMENTS TO SECTION 4(E) OF RULE 3 AND SECTION 7

OF RULE 18 OF THE IMPLEMENTING RULES AND REGULATIONS (IRR)
OF REPUBLIC ACT NO. 9136 OTHERWISE KNOWN AS
THE ELECTRIC POWER INDUSTRY REFORM ACT (EPIRA)
Pursuant to the Department of Energy’s “Section 4. Responsibilities of the ERC.

mandate under the EPIRA, the following
amendments to Section 4(e) of Rule 3 and (e) Any application or petition for
Section 7 of Rule 18 of the EPIRA IRR are rate adjustment or for any relief
hereby promulgated. affecting the consumers must be
verified, and accompanied with an
Section 1. Section 4(e) Rule 3 of the EPIRA acknowledgment of receipt of a copy
IRR is hereby amended to read as follows: thereof by the LGU Legislative Body

of the locality where the applicant Transmission True-up Mechanism,
or petitioner principally operates System Loss Rate Adjustment
together with the certification of Mechanism, Lifeline Rate Recovery
the notice of publication thereof in Mechanism, Cross-Subsidy
a newspaper of general circulation in Mechanism, Local Franchise Tax
the same locality. Recovery Mechanism, Business Tax
Recovery Mechanism, Automatic
The ERC may grant provisionally or Generation Rate Adjustment
deny the relief prayed for not later Mechanism, VAT Recovery
than seventy five (75) calendar days Mechanism, Incremental Generation
from the filing of the application or Cost Adjustment Mechanism, and
petition, based on the same and Recovery of Deferred Accounting
the supporting documents attached Adjustment for Fuel Cost and Power
thereto and such comments or Producers by NPC and NPC-SPUG,
pleadings the consumers or the provided that, such adjustments
LGU concerned may have filed shall be subject to subsequent
within thirty (30) calendar days from verification by the ERC to avoid over/
receipt of a copy of the application under recovery of charges.”
or petition or from the publication
thereof as the case may be. Section 2. Section 7 of Rule 18 is hereby
amended to read as follows:
Thereafter, the ERC shall conduct a
formal hearing on the application “Section 7. Deferment.
or petition, giving proper notices to
all parties concerned, with at least All Self-Generation Facilities whether
one public hearing in the affected new, existing or under construction
locality, and shall decide the matter shall not be covered by the imposition
on the merits not later than twelve of Universal Charge for a period of
(12) months from the issuance of the three (3) years from June 30, 2007:
aforementioned provisional order. Provided, that, such Self-Generation
Facilities shall register with ERC and
This Section 4 (e) shall not apply PSALM.”
to those applications or petitions
already filed as of 26 December 2001 Section 3. Effectivity. The amendments
in compliance with Section 36 of the shall take effect three (3) days following its
Act. publication in two (2) newspapers of general
circulation.
This Section 4 (e) shall not apply
to Generation Rate Adjustment Energy Center, Fort Bonifacio, Taguig City,
Mechanism (GRAM), Incremental Metro Manila, 21 June 2007
Currency Exchange Recovery
Adjustment (ICERA), Transmission RAPHAEL P.M. LOTILLA
Rate Adjustment Mechanism, Secretary

DEPARTMENT CIRCULAR NO. 2004-01-001
PRESCRIBING THE RULES AND PROCEDURES FOR PRIVATE SECTOR PARTICIPATION IN EXISTING
NPC-SPUG AREAS PURSUANT TO RULE 13 OF THE IMPLEMENTING RULES AND REGULATIONS OF
THE ELECTRIC POWER INDUSTRY REFORM ACT OF 2001 (EPIRA-IRR)
WHEREAS, it is the declared policy of the Section 1. Definition of Terms.

State to ensure and accelerate the total
electrification of the country; Unless the context otherwise indicates, the
terms used in this Circular shall have the
WHEREAS, under Section 1 of Rule 13 of the following meanings:
EPIRA IRR, the Department of Energy (DOE)
is tasked to issue specific guidelines on how (a) “Act” refers to Republic Act No. 9136,
to encourage the inflow of private capital and otherwise known as the “Electric Power
the manner whereby other parties including Industry Reform Act of 2001;”
utilities and qualified third parties can
participate in the missionary electrification; (b) “Best New Entrant Tariff” refers to the
tariff which would need to be charged by
WHEREAS, under Section 3 of the EPIRA IRR, an efficient entrant to cover its costs and
the Small Power Utilities Group of the National earn a reasonable return on capital;
Power Corporation (NPC-SPUG), is mandated
to periodically assess the requirements and (c ) “Commercially Viable” refers to an area
prospects of bringing power generation or service where the resultant True Cost
and associated power delivery systems to Generation Rate is equal to or less than
commercial viability on an area-by-area basis the Socially Acceptable Generation Rate;
including a program to encourage private
sector participation; (d) “Conclusion Program” refers to the
program prescribing the period/duration
WHEREAS, missionary electrification that the UC-ME will be made available to
functions of NPC-SPUG are funded from the the New Private Provider (or “NPP”) from
revenues from sales in missionary areas and the effectivity date of the takeover of an
from the Universal Charge, the participation NPC-SPUG area;
of private sector shall reduce the burden on
the missionary electrification component on (e) “Floor Price” refers to the price at which
the Universal Charge (UC-ME); NPC-SPUG specifies it is willing to sell
an asset to an NPP selected to serve an
WHEREAS, the participation of private sector NPC-SPUG area. The Floor Price may
in missionary areas shall reduce the burden be set at a fair value, as appraised by an
on the UC-ME; independent appraiser, or to the book
value of the asset;
NOW, THEREFORE, FOR AND IN
CONSIDERATION OF THE FOREGOING (f) “Graduate” refers to any area where
PREMISES, the DOE hereby issues the provision of Missionary Electrification
following guidelines and procedures to Subsidy is remove/stopped, by reason
guide and encourage the private sector to that the area or service is deemed
participate in existing NPC-SPUG areas: Commercially Viable;
(g) “IRR” refers to the implementing rules Distribution Utility to pay for power to
and regulations of Republic Act No. 9136, supply a current or former NPC-SPUG
otherwise known as the “Electric Power area. The Socially Acceptable Generation
Industry Reform Act of 2001;” Rate combined with the Missionary
Electrification Subsidy should equal the
(h) “Missionary Electrification” refers to the True Cost Generation Rate;
provision of basic electricity service in
Unviable Areas with the ultimate aim of (p) “Transaction Advisor” refers to a
bringing the operations in these areas to professional/expert engaged by DOE to
viability levels; assist in developing the most appropriate
privatization program for existing NPC-
(i) “Missionary Electrification Subsidy” SPUG areas;
refers to the subsidy approved by ERC to
be paid to an NPP to allow it to recover (q) “True Cost Generation Rate” refers to the
its True Cost Generation Rate while full efficient costs of generating power in
charging the Distribution Utility the an area. For the purpose of this Circular,
Socially Acceptable Generation Rate. The True Cost Generation Rates shall be
Missionary Electrification Subsidy shall determined on the same basis provided
be funded from the UC-ME based on the for under Section 43(f) of the Act for
petition filed by NPC-SPUG; setting or determining transmission
wheeling rates and retail rates for the
(j) “New Missionary Areas” refers to an area captive market of a Distribution Utility
declared Unviable by the Distribution to allow sufficient recovery of just and
Utility for any reason and offered to reasonable costs and a reasonable return
private sector for supply of electricity; on rate base (RORB) to enable the entity
to operate viably; and
(k) “New Private Provider” or “NPP” refers
to an entity deemed technically and (r) “Unviable Area” refers to a geographical
financially capable to serve/take over area within the Franchise Area of a
existing NPC-SPUG areas, resulting from Distribution Utility where immediate
the competitive bidding exercise; extension of distribution line is not
feasible;
(l) “NPC-SPUG” refers to the
functional unit of NPC created to pursue Other words and phrases have the same
the Missionary Electrification function; meanings as in EPIRA and its IRRs.
(m) “NPC-SPUG Area” refers to a geographic Section 2. Declaration of Policies for

area currently supplied with electricity Missionary Electrification.
generated by NPC-SPUG;
(a) This Circular shall only apply to all areas
(n) “Power Supply Agreement” or “PSA” being served by NPC-SPUG.
refers to an Agreement between a power
producer and a Distribution Utility for (b) All existing NPC-SPUG areas are hereby
supply of power; declared open for private sector
participation. For the purpose of this
(o) “Socially Acceptable Generation Circular, private sector participation
Rate” refers to the rate, which ERC shall mean “the take over of the supply
has determined would be desirable, of electricity to any existing NPC-SPUG
on social acceptability grounds, for a areas, either through outright purchase

or lease existing NPC-SPUG assets, and/ (b) The competitive process shall be
or installation of new power generating designed to ensure that prospective
facilities including associated power NPPs intending to participate in NPC-
delivery systems.” SPUG privatization program possess
suitable level of financial and technical
(c ) NPC-SPUG shall endeavor to privatize capacity. The process design shall give
its power generation facilities and due consideration to achieving the lowest
associated power delivery systems. long-term cost of power and services,
environmental compatibility with the
(d) When NPC-SPUG ceases to serve an local area, and the most advantageous
area, it may sell its assets in the area implementation schedule.
or redeploy to serve another area. The
sale of assets of NPC-SPUG shall follow (c ) Distribution Utilities operating in existing
the government’s standard accounting NPC-SPUG areas shall have the following
procedures. options in managing the competitive
process for the selection of their
(e) Distribution utilities currently sourcing respective NPPs:
power supply from NPC-SPUG, wholly
or partly, are encouraged to seek NPPs. (i) Request DOE to secure a Transaction
The NPPs shall be selected based on Advisor or engage the services of a
competitive bidding with the view to Transaction Advisor, at it own cost,
minimize power purchase cost of the to assist in selecting the appropriate
Distribution Utility. NPP;
(f) In cases where a Distribution Utility does (ii) Allow NPC-SPUG to assign its existing
not select an NPP, NPC-SPUG will assign PSA to an NPP through a competitive
its existing Power Supply Agreement process; or
(PSA) to a competitively selected NPP, if
this would lead to a reduction in the total (iii) Manage the competitive selection
cost of power supply. process by itself
(g) DOE shall promote policies that will (d) To ensure an orderly and well managed
strengthen governance structure such process, Distribution Utilities operating
as protection of investors’ rights and in NPC-SPUG areas shall be grouped into
consumer education in NPC-SPUG areas ‘waves,’ based on the suitability of the
that were taken over the NPPs. area for supply by an NPP:
(h) The DOE shall prescribe the Conclusion (i) The first wave shall include areas
Program in existing NPC-SPUG areas deemed most attractive for NPPs, or
taken over by NPPs to optimize the which are causing the greatest losses
utilization of the UC-ME. to NPC-SPUG;
Section 3. Procedures for Selection of New (ii) DOE shall notify the Distribution
Power Providers. Utilities in a wave that they are to
choose one of the three options to
(a) A competitive process shall be used to select their NPP/s. After being so
select one or more NPPs to supply power notified by DOE, a Distribution Utility
to each NPC-SPUG area. must within two (2) months, notifies
DOE and NPC-SPUG, which option

it, has selected. If the Distribution SPUG phases out supply and services to
Utility does not notify DOE or NPC- the area.
SPUG within the prescribed time
period, it shall be deemed to have (b) Disposal of Generation-related assets.
selected option under Section 3 (c ) All generation assets and other NPC-SPUG
(ii). assets, which were used to serve an area,
with the exception of sub-transmission
(iii) Any Distribution Utility, which wishes assets, will be disposed of through the
to be included in the first ‘wave’ may following process:
notify DOE, and shall be so included.
(i) NPC-SPUG shall offer the winning
(iv) Distribution Utilities, which selected NPP the right to buy the assets at a
option under Section 3(c )(iii), shall Floor Price. The option to purchase,
be monitored by DOE to ensure that together with the Floor Price, shall
their progress toward selection of be provided in the PSA bidding
an NPP is comparable to that of the documents.
Distribution Utilities, which opted
to use option under Section 3 (c ) (ii) The Floor Price shall be set by an
(i) or option under Section 3(c) (ii). If independent appraiser, based on the
a Distribution Utility falls significantly value of the asset to NPC-SPUG in
behind schedule compared to other uses or its sound value, or may
Distribution Utilities under the other be set at the book value of the asset.
two options, DOE may offer that
Distribution Utility the option to (iii) In the event that the winning NPP
adopt Section 3 (c )(i), or may assign does not exercise its option to
it to option under Section 3 (c )(ii) purchase the assets at the set floor
(i.e., NPC-SPUG shall select the NPP price, NPC-SPUG may redeploy the
and assign its PSA, thus removing the asset to serve another NPC-SPUG
Distribution Utility’s control of the area, or otherwise shall, within
process) two (2) months, auction the assets
through an open, ascending bidding
(e) Once an NPP has been selected, NPC- process.
SPUG shall accordingly assign, amend
or terminate its PSA with the concerned The winning NPP shall have the right
Distribution Utility in such a way as to to participate in this auction
provide a smooth and efficient transition
to the NPP. (c ) Disposal of Sub-transmission Assets.

(f) Towards this end, NPC-SPUG shall, within NPC-SPUG shall dispose of is sub-
one (1) month from effectivity of this transmission assets according to the
Circular, prepare and submit to DOE its following process:
proposed groupings or waves, consistent
with subparagraph (d) of this section. (i) NPC-SPUG shall first offer the sub-
transmission assets to the relevant
Section 4. Disposal of Surplus NPC-SPUG Distribution Utility they serve, using
Assets. the same procedure as that set out
for sale of National Transmission
(a) NPC-SPUG shall dispose of its surplus Company (TRANSCO) sub-
assets once an NPP is in place and NPC- transmission assets to Distribution
Utilities prescribed in Section 8
of EPIRA, Rule 6 of EPIRA IRR and (1) NPPs supplying taken-over NPC-
guidelines issued by the Energy SPUG areas may charge the True
Regulatory Commission (ERC) on 17 Cost Generation Rates;
October 2003 on the sale and transfer
of the TRANSCO sub-transmission (2) True Cost Generation Rates
assets and franchising of qualified shall be established based
consortia. This includes determining on competitive bidding to
the disposal value of the assets on supply at least cost, or in cases
the basis of its revenue potential. where there was not effective
competitive bidding, through
(ii) If the Distribution Utility does not application of Best New Entrant
agree to buy the sub-transmission tariff benchmarking;
assets, NPC-SPUG shall offer the sale
to any consortium of Distribution (3) In cases where DOE considers
Utilities or to TRANSCO at the same the True Cost Generation
price. Rate too high to be socially
acceptable, NPC-SPUG shall
(iii) If no buyer for the assets can be found, petition ERC to set a Socially
NPC-SPUG shall endeavor to enter Acceptable Generation Rate, and
into an operations and maintenance for a Missionary Electrification
(O & M) contract with the relevant Subsidy to be paid from the
Distribution Utility operating in the UC-ME. The Missionary
area, under which the Distribution Electrification Subsidy will be
Utility takes over responsibility for calculated as the difference
operating and maintaining the sub- between the True Cost
transmission assets. Generation Rate and the Socially
Acceptable Generation Rate;
(iv) In the event that NPC-SPUG continues
to own the sub-transmission assets, (4) The Socially Acceptable Rate
NPC-SPUG shall review and optimize may rise over time in line with
its operating costs, and apply to ERC development of an area, and
for a rate increase to cover the full as a result the Missionary
cost of operating and maintaining Electrification Subsidy for an
sub-transmission services. area may be set to decline over
period;
Section 5. Additional Functions of NPC-
SPUG. (5) When the Socially Acceptable
Tariff is equal to or higher than
In addition to its existing functions, NPC-SPUG the True Cost Generation Tariff,
shall perform the following: an area shall be considered
Commercially Viable, and NPC-
(a) Petition ERC on the proposed regulatory SPUG shall no longer petition
regime aimed at encouraging private ERC for Missionary Electrification
sector participation in existing NPC-SPUG Subsidy for such areas, which
areas: will be referred to as having
Graduated;
(i) NPC-SPUG will petition ERC to
implement a regulatory regime with (6) ERC will be petitioned to
the following key characteristics: determine the Missionary
Electrification Subsidy to be
provided to the NPP serving the the UC-ME, as determined by the ERC.
area, and the Socially Acceptable
Generation Rate consistent with Section 6. Non-Retroactivity
that subsidy;
This Circular does not apply to PSAs where
(7) If a Missionary Electrification tariff rates have been approved by the
Subsidy is provided to the NPP ERC before the date of effectiveness of the
serving an area, the NPP shall Circular.
be required by regulation and/or
the terms of the PSA to reduce Section 7. Repealing Clause.
its charges to the Distribution
Utility commensurate with the All pertinent issuances, circulars and
subsidy received. The principle memoranda inconsistent with this Circular
is that he tariff revenue and the are hereby amended or repealed accordingly.
subsidy should, taken together,
be equivalent to the True Cost Section 8. Saving Clause.
Generation Rate; and
(a) If for any reason, any provision of this
(8) At all times, the NPP serving a Circular is declared unconstitutional or
taken over NPC-SPUG area has invalid, the other parts or provisions
the right to charge its True Cost hereof which are not affected thereby
Generation Rate if it does not shall continue to be in full force and
receive a subsidy which covers effect.
the difference between the True
Cost Generation Rate and the (b) The implementation of this Circular shall
Socially Acceptable Rate. not exempt the parties from applicable
laws, rules and regulations.
(b) Assist Distribution Utilities operating in
existing NPC-SPUG areas to enter PSAs Section 9. Effectivity.
with NPPs.
This Circular shall take effect upon its
(c ) Ensuring that New Missionary Areas complete publication in a newspaper of
are served effectively and efficiently by general circulation.
Qualified Third Parties (QTPs) wherever
possible, and by NPC-SPUG directly in the VICENTE S. PEREZ, JR.
event that no QTPs are willing to serve Secretary
the area.
Fort Bonifacio, Taguig, Metro Manila,
(d) Ensure payment of the subsidies to Philippines, 26th January 2004.
entities qualified to avail subsidies from

PRESCRIBING THE GUIDELINES FOR PARTICIPATION OF QUALIFIED THIRD PARTIES (QTPs) FOR
PROVISION OF ELECTRIC SERVICE IN REMOTE AND UNVIABLE AREAS, PURSUANT TO SECTIONS 59
AND 70 OF “THE ELECTRIC POWER INDUSTRY REFORM ACT OF 2001, “ AND ITS IMPLEMENTING
RULES AND REGULATIONS (IRR)
WHEREAS, Section 2 (a) of Republic Act No. Development Plan (DDP)”(DDP Circular)
9136, otherwise known as the “Electric Power which requires all Distribution Utilities (DUs)
Industry Reform Act of 2001” or “ EPIRA”, to, among others, identify and submit to DOE
declared the policy of the State to ensure the list of barangays within their respective
and accelerate the total electrification of the franchise areas that are deemed remote,
country; unviable and cannot be provided with electric
service within the next three (3) years;
WHEREAS, the Department of Energy
(DOE) is tasked to develop and manage the WHEREAS, the DOE has likewise issued
electrification of rural and missionary areas Department Circular (DC) No. 2004-06-006 on
nationwide, and to formulate annually a five (5) 18 June 2004 (DOE QTP Qualification Circular),
year Missionary Electrification Development prescribing the qualification criteria for the
Plan (MEDP) that will identify among others, QTPs that may participate in the provision of
the additional capacity in existing missionary electricity to remote and Unviable Areas;
areas as well as the facilities to be provided
in areas not connected to the transmission WHEREAS, there is a need to revise and
system; update the qualification criteria and to
include the process by which areas shall be
WHEREAS, Rule 13 (Missionary Electrification) selected for the QTP program and for which
of the Implementing Rules and Regulations QTPs will be selected, as set forth in the DOE
(IRR) of “EPIRA” or “EPIRA-IRR”, mandates QTP Qualification Circular;
the DOE to issue specific guidelines on how
to encourage the inflow of private capital NOW, THEREFORE, FOR AND IN
and the manner in which other parties can CONSIDERATION OF THE FOREGOING
participate in the projects set forth in the PREMISES, the DOE hereby promulgates
MEDP; the following guidelines, expanding and
complementing the DOE QTP Qualification
WHEREAS, Section 59 (Alternative Electric Circular for private sector participation in
Service for Isolated Villages) of the EPIRA Unviable Areas consistent with the EPIRA and
recognizes the provision of electric service by the missionary electrification program of the
Qualified Third Parties (QTPs) in remote and Government as prescribed in the MEDP.
unviable areas that the franchised utility is
unable to service; Section 1. Definition of Terms
WHEREAS, pursuant to Section 4(p) of Rule (a) “Department of Energy” or “DOE” refers
7 of the EPIRA-IRR, the DOE has issued on to the government agency created
20 February 2004, Department Circular (DC) pursuant to Republic Act No. 7638 whose
No. 2004-02-02 “Prescribing Guidelines for expanded functions are provided in the
the Formulation of Five-Year Distribution Act;

(b) “Distribution Utility or “DU” as defined (g) “Missionary Electrification Development
by Section 4(q) of the EPIRA refers Plan” or “MEDP” refers to the five- (5)
to any electric cooperative, private year plan of the DOE, updated annually, to
corporation, government-owned utility implement the Government’s missionary
or existing local government unit which electrification program funded through
has an exclusive franchise to operate a the share in the Universal Charge for
distribution system in accordance with Missionary Electrification;
its franchise and the EPIRA;
(h) “Missionary Electrification Subsidy”
(c) “Energy Regulatory Commission or “ERC” refers, for purpose of this Circular, to the
refers to the independent, quasi-judicial funds duly approved by the ERC to cover
regulatory agency created under Section the difference between the Full Cost
38 of EPIRA which shall, among others, Recovery Rate and Subsidized Approved
promote competition, encourage market Retail Rate of a Qualified Third Party
development, have exclusive jurisdiction sourced from the Universal Charge for
over all cases contesting rates, fees, Missionary Electrification;
fines and penalties, as well as fix and
approve the Universal Charge imposed (i) “Person” refers to a natural or juridical
on all electricity consumers for purposes person, as the case may be;
provided in the EPIRA;
(j) “Power Sector Asset and Liabilities
(d) “Full Cost Recovery Rate” or FCRR shall Management Corporation” or “PSALM”
refer to the rate, expressed in Peso per refers to the corporation created
kilowatt-hour that recovers the full pursuant to Section 49 of the EPIRA; (as
efficient costs of generating, distributing defined in Section 4 (oo) of the EPIRA)
and supplying electricity. The FCRR must
be sufficient to enable the QTP to operate (k) “Qualified Third Party” or “QTP” refers to
viably the alternative electric service provider
that meets the standards and chosen
(e) “Generation Company” as defined by in accordance with the process set
Rule 4 (ddd) and cross-referenced to forth in this Circular, duly qualified and
Section 70 of the EPIRA IRR refers to authorized by the ERC to serve Unviable
any person or entity authorized by Areas pursuant to Section 59 (Alternative
the Energy Regulatory Commission to Electric Service for Isolated Villages)
operate facilities used in the generation of the EPIRA and Rule 14 (Provision of
of electricity; Electricity by Qualified Third Parties) of
the EPIRA-IRR;
(f) “Missionary Electrification” refers to the
power generation and associated delivery (l) “QTP Service Contract” refers to the
systems function of NPC-SPUG that shall agreement, duly approved by the ERC
be funded from the Universal Charge for between NPC and the Qualified Third
Missionary Electrification which consists Party defining the latter’s responsibilities
of providing basic electricity service in in providing the service of missionary
Unviable Areas with the ultimate aim of electrification in Unviable Areas. This
bringing the operations in these areas to agreement shall set the terms and
viability levels, as defined in Rule 4 (ddd) conditions by which the QTP shall provide
and cross-referenced to Rule 13, Section the service, such as but not limited to
1 (a) and (b) of the EPIRA-IRR; the tariff levels, other electric service
charges, the applicable performance and

service standards required for qualified designated for Missionary Electrification;
third party service providers; and
(m)
“QTP Service Area” refers to the (s) “Waiver Contract” refers to the contract
geographic area corresponding to the entered into between the Distribution
Unviable Area/s where QTP shall provide Utility and the QTP pursuant to Rule 14
missionary electrification service; Section 5(a) of the EPIRA IRR wherein
the DU transfers the responsibility to
(n) “Renewable Energy Resources” refers service the area described therein. For
to energy resources that do not have an avoidance of doubt, the franchise of the
upper limit on the total quantity to be DU shall not be transferred, abandoned
used. Such resources are renewable on and/or modified with respect to the
a regular basis and the renewable rate is Unviable Area included therein but only
rapid enough to consider available over the right to service such area shall be
an indefinite time. These include, among deemed assumed by the QTP.
others, biomass, solar, wind, hydro and
ocean energy; Section 2. Declaration of Policies
(o) “Subsidized Approved Retail Rate” or It is hereby declared the policies of the DOE
“SARR” shall refer to the rate, expressed that:
in Peso per kilowatt-hour, that the ERC has
determined to be the maximum that an (a) All DUs shall endeavor to provide
end-user should pay for power supplied electricity service to all areas within their
by a QTP. Revenue from the Subsidized respective franchise areas, including
Approved Retail Rate combined with the remote and unviable areas, in an efficient
Missionary Electrification Subsidy should and sustainable manner consistent with
put the QTP in the same financial position their respective franchises or authorities.
as if it was able to charge the Full Cost Should the DU fail to serve the remote
Recovery Rate; and unviable areas within its franchise
area, the same may be opened for private
(p) “Unviable Area” refers to a geographical sector participation and included in the
area within the franchise area of a QTP program.
Distribution Utility where the immediate
extension of distribution line is not (b) All areas identified by the DUs to be
feasible, as defined by Rule 4 (ssss) of the remote and unviable shall be declared
EPIRA-IRR. For purposes of this Circular, open for QTP participation by the DOE
the term “remote and unviable area” in in consultation with and based on
the EPIRA, EPIRA-IRR or other laws or the criteria set forth by the National
issuances shall mean “Unviable area” as Electrification Administration (NEA).
defined herein; and, Upon selection and qualification of the
QTP to service a particular area, the
(q) “Universal Charge” refers to the charge if concerned DUs shall then transfer its
any, imposed for the recovery of stranded rights to said selected and qualified QTP.
cost and other purposes pursuant to No fee for the transfer of rights to serve
Section 34 of the EPIRA; the Unviable Areas shall be paid to the
DU.
(r) “Universal Charge for Missionary
Electrification” or “UC-ME refers to the (c) The participation as a QTP shall be open
portion of the Universal Charge which to any party, including but not limited

to private firms, local government (c) Consolidation of List of Areas. The
units, cooperatives, non-government DOE-EPIMB, shall consolidate and make
organizations, generation companies or available through publication, the list of
their subsidiaries or subsidiaries of DUs Unviable Areas that will be offered to
who has demonstrated the capability QTPs.
and willingness to comply with the
relevant technical, financial, and other (d) Publication of Unviable Areas. The
requirements through a competitive DOE shall declare and publish the list of
or transparent process. A DU or its Unviable Areas not later than September
subsidiary shall not be qualified to of every year. The list shall also be made
participate as a QTP for the area/s it has accessible to the public through posting
waived. in the DOE website at www.doe.gov.ph.
(d) All QTPs shall adopt least-cost and most (e) If no candidate QTP submitted an EOI in
efficient technology options in serving a particular Unviable Area/s, the request
Unviable Areas. In determining the QTP, for the submission of EOI shall continue
preference shall be given to persons to hold for at least two (2) months from
or entities that can offer the least-cost the first publication. In the event that no
technologies utilizing renewable energy EOI is submitted within this two (2) month
resources. period, the DOE shall include the area/s
in its other missionary electrification
Section 3. Declaration of Unviable Areas programs.
The DOE hereby adopts the following Section 4. Procedures for Selecting
procedures in the declaration of Unviable Candidate QTPs
Areas:
(a) The publication referred to in Section
a. Classification of Areas. The DU shall 3(d) shall serve as the call for “Expression
classify the unelectrified areas within its of Interest” (EOI) to all interested parties
franchise between viable and unviable willing to provide electricity services
areas. In line with the DDP Circular, the through QTP participation.
DUs shall comply with the submission of
duly accomplished DOE-EPIMB Form No. (b) Any person or entities who wish to
03-002 on the list of areas to be waived perform the QTP function in a particular
(attached as Annex “A”), through DOE Unviable Area/s shall submit to DOE an
– Electric Power Industry Management EOI which shall include the following:
Bureau (DOE-EPIMB).
1. Official Letter of Intent;
(b) NEA Verification. NEA shall verify the
basis or justification upon which the DUs 2. Profile of the Company or
have selected or nominated remote and Organization;
unviable areas within its franchise as part
of the QTP program. NEA shall submit its 3. Relevant registration from Securities
proposed evaluation criteria to the DOE and Exchange Commission,
for clearance no later than thirty (30) Department of Trade and Industry,
days from the issuance of this Circular NEA or Cooperative Development
and shall thereafter be published in the Authority, whichever is applicable;
NEA Bulletin and DOE website at www. and
doe.gov.ph for information of all DUs
concerned.
4. Other relevant and readily available Disbursement Agreement (SDA), all
supporting documents. duly approved by the ERC;
(c) The DOE-EPIMB shall receive all EOIs and (ii) Minimum technical and financial
maintain records of all entities who have requirements, such as:
expressed interests in serving any remote
and unviable area on a per service area a. Minimum hours of continuous
basis. electricity service;
(d) This Circular together with the DOE b. Type of technology to be used
QTP Qualification Circular shall serve as (optional);
the documents providing the basis for
selecting candidate QTPs. On the basis c. Minimum equity requirements
of the criteria for qualification identified for the project’s financial
in said Circulars, the DOE EPIMB shall structure; and
evaluate the capacity of every applicant
based on the documents officially d. Other measures of project
submitted and such additional documents feasibility that may be required
in support the application that may be by the DOE.
requested by the DOE-EPIMB.
(iii) Criteria for evaluation of proposals;
(e) The DOE shall inform in writing all parties and
who submitted EOI of the results of its
evaluation. (iv) Other information deemed necessary
by the DOE for a full evaluation of
(f) Party/ies that meet the set criteria will proposals.
be recommended to the DOE Secretary
for confirmation as candidate QTPs in (b) The QTP shall then submit the following:
respect of a particular service area/s as
specified in the EOI. (i) Its proposed QTP Service Area
naming the specific Unviable Area/s
Section 5. Procedure for the Selection of covered by RFP;
QTP to Serve Unviable Areas
(ii) Outline of the proposal to specify the
The following rules shall govern the selection data requirements but not limited to
of the QTP: the following:
(a) The DOE shall issue the Request for a. Proposed details of the
Proposal (RFP) to all candidate QTPs. electrification solution or
The RFP shall establish the process of technology to be applied for the
evaluation and selection of QTP for a target area;
particular Unviable Area/s.
b. Number of potential and target
For each QTP Service Area, the RFP issued household connections as
by DOE shall contain the following: well as indicative milestones/
schedule of deliverables;
(i) Copy of the Model QTP Service
Contract package consisting of the c. Proposed institutional and
Waiver Contract and Subsidy and commercial arrangements (i.e.,

meter reading, billing, collection, with the concerned DU.
disconnection policies and
procedures, etc.); (f) After the signing of QTP Service Contract
and related documents, the DOE
d. Expected date of commissioning/ shall endorse the candidate QTP with
commercial operation of the complete requirements to ERC for final
project; qualification and authorization consisting
of the issuance of all necessary permits
e. Proposed FCRR and other and/or licenses and approval of tariffs to
charges to end-users; and be passed on by the QTP to its end-users
in the QTP Service Area.
f. Other information/documents
to support the applicant’s (g) In the case there is more than one QTP
capability to provide efficient proposal received to serve a particular
and reliable electricity as well area/s, the DOE EPIMB shall give
as requirements prescribed in preference to the proposal that can
Circular No. 2004-06-006. offer the most number of connections or
highest level of electric service at lower
(iii)
Other necessary requirements cost applicable to a particular Unviable
deemed necessary in the selection Area/s.
process of QTP.
(h) In the case there is only one QTP proposal
(c) Each candidate QTP shall be given at received to serve a particular area/s,
least forty-five (45) calendar days from the DOE-EPIMB shall publish in the DOE
the issuance of the RFP to undertake due website at www.doe.gov.ph for at least
diligence and prepare the proposal (Due one (1) month from the publication
Diligence Period). Final and detailed date such relevant information on the
proposals shall be submitted to and proposal and invite other entities to
received by the DOE-EPIMB not later match the offer.
than five (5) working days after the last
day of Due Diligence Period. Section 6. Rates and Subsidies for Unviable
Areas
(d) The QTP selection process shall be
completed within sixty (60) days from (a) For the duration of the term of the
receipt of a complete and final proposal QTP Service Contract, the QTP shall be
and all necessary documents by the deemed to be performing the missionary
candidate QTPs. The DOE shall notify electrification service on behalf of NPC-
in writing each candidate QTP that SPUG with respect to the QTP Service
submitted proposals of the results of the Area.
selection process, indicating therein, as
applicable, the particular Unviable Area/s (b) The DOE through NPC-SPUG consistent
that comprise the QTP Service Area/s. with its MEDP, shall petition the ERC to
grant a UC-ME subsidy fund for QTPs.
(e) The DOE shall advise the candidate QTP
to commence the negotiation for the (c) The QTP shall be eligible for subsidy
signing of the QTP Service Contract with with respect to its QTP Service Area in
the NPC-SPUG. The DOE and NEA shall the event that the Full Cost Recovery
facilitate and assist the candidate QTP in Rate (FCRR) is determined to be higher
finalizing and signing the Waiver Contract than the Subsidized Approved Retail

Rate (SARR) with respect to said area/s. the completed number of connections;
The difference in the FCRR and the and
SARR shall be the computed Missionary
Electrification Subsidy based on a per (g) As applicable and with prior authority
connection system. from ERC, charge and collect UC from all
end-users within the QTP Service Area
(d) Payment or disbursement of UC-ME and remit the same to the DU or the
subsidy shall conform with the ERC- National Transmission Corporation, as
approved guidelines and procedures the case may be, in accordance with law.
governing the remittances and
disbursements of the Universal Charge Section 8. Responsibilities of a Distribution
developed and managed by the Power Utility in Areas served by the Qualified Third
Sector Assets and Liabilities Management Party
Corporation (PSALM), and to the subsidy
disbursement mechanism to be included (a) Extend assistance to the QTP serving a
in the SDA for ERC approval. QTP Service Area within its franchise;
such assistance to include but not be
(e) Every year, the DOE shall incorporate limited to securing the necessary rights
in its MEDP the list of duly authorized of way, site acquisition, and coordination
QTPs and their corresponding subsidy with concerned local agencies.
requirements.
(b) Finalize and execute a Waiver Contract
Section 7. Responsibilities of the Qualified with the QTP with respect to the Unviable
Third Party Area/s within its franchise.
(a) Meet the qualification criteria set by the Section 9. Responsibilities of NPC-SPUG
DOE in the RFP;
(a) Ensure that the QTP shall serve its
(b) Secure from ERC relevant permits and respective QTP Service Area by providing
licenses, including authority to charge its adequate and reliable electric service
rates, in order to commence providing and performing in accordance with the
services in its respective area/s; standards set in the QTP Service Contract.
(c) Comply with all the provisions, including (b) Review, finalize and execute the
the financial, technical, environmental QTP Service Contract and Subsidy
and other performance standard of the Disbursement Agreement with the
QTP Service Contract entered into with selected QTP, in accordance with this
NPC-SPUG; Circular and ERC Guidelines on QTP.
(d) Submit periodic reports to ERC on its (c) Apply with the ERC for the approval of the
financial and technical performance SARR and the Missionary Electrification
pursuant to Rule 14 of the EPIRA-IRR; Subsidy.
(e) Operate and maintain its facilities to (d) Submit periodic reports to ERC on QTP
provide services in the QTP Service Area performance relative to its compliance
in an efficient and sustainable manner; with the terms of QTP Service Contract
and ERC guidelines.
(f) Submit periodic reports to DOE on the
status of its electrification program and

(e) Submit periodic reports to ERC and DOE, NPC-SPUG, NEA, and PSALM to
PSALM on the disbursement and conduct, among others, the evaluation
utilization of the UC-ME. of proposals and recommend thereafter
the candidate QTP to serve the Unviable
(f) Unless otherwise provided in the MEDP Areas.
or an alternative arrangement with the
affected DU, act as the service provider (b) The DOE shall inform the ERC in writing
of last resort in case the QTP fails to fulfill of any significant variations between
its obligations to serve the areas awarded the executed QTP Service Contract and
to the QTP. related agreements and the ERC pre-
approved Model QTP Service Contract
Section 10. Responsibilities of DOE and related agreements.
(a) Monitor rate of electrification for each (c) The DOE shall assist NPC-SPUG in the
QTP Service Area. preparation of the latter’s proposal to
ERC for approval a uniform Subsidized
(b) Conduct the QTP selection process, in Approved Retail Rate for the purpose of
coordination with the Technical Working determining the corresponding amount
Group formed pursuant to Section 12 of Missionary Electrification Subsidy that
herein, in accordance with this Circular each QTP shall be entitled to receive from
and the RFP. NPC-SPUG.
(c) Determine and incorporate in the MEDP (d) To encourage investments and private
the QTP projects and corresponding UC- sector participation in Unviable Area/s,
ME requirements, if any, in payment of the DOE shall coordinate with the ERC on
the Missionary Electrification Subsidy. the appropriate rate setting methodology
that will provide for the QTPs full cost
Section 11. Responsibilities of NEA recovery of the investments incurred or
to be incurred including the cost to cover
(a) Establish the criteria for verification of their operation in the QTP Service Areas.
areas submitted or nominated by the
DUs as remote and unviable areas for (e) Consistent with Section 1(d) of Rule 13
clearance by the DOE, in accordance with of the EPIRA-IRR, the DOE shall include
Section 3(b) of this Circular. in the preparation of MEDP all the
electrification projects to be undertaken
(b) Evaluate and verify the areas submitted by the QTPs in Unviable Areas for possible
by DUs as remote and unviable and subsidy allocation to be funded through
submit its recommendations to the DOE UC-ME.
in accordance with Section 3 of this
Circular. (f) The DOE, in consultation with the
Technical Working Group, shall adopt
(c) Assist the DOE in monitoring of the rate of a transition mechanism to govern
electrification by the QTP of the different existing waived areas and community-
QTP Service Areas. based organizations and provide for the
inclusion of the same in the QTP program.
Section 12. Miscellaneous Provisions For this purpose:
(a) The DOE shall form a Technical Working (a) Areas that are currently served by
Group composed of representatives from the DUs but are deemed unviable on

account of huge operating costs may (a) If for any reason, any provision of
be offered by the concerned DUs for this instrument/circular is declared
inclusion in the list of Unviable Areas unconstitutional or invalid, the other
or to be clustered with the Unviable parts or provisions hereof which are not
Areas for inclusion QTP Program. affected thereby shall continue to be in
full force and effect.
(ii) Subject to any guidelines that
the ERC may issue, private (b) The implementation of this Circular shall
sector-driven or community- not exempt the parties from existing
based electrification projects government rules and regulations, and
which do not require subsidy applicable government agency circulars
from the UC-ME may proceed or issuances.
with the service provided that
the proponents/operators shall Section 15. Effectivity
notify the DOE within three (3)
months from the Effective Date This Circular shall take effect within fifteen
of this Circular. (15) days upon publication in newspaper of
general circulation.
Section 13. Repealing Clause
RAPHAEL P.M. LOTILLA
All pertinent issuances, circulars and Secretary
memoranda inconsistent with this Circular
are hereby amended or repealed accordingly. Fort Bonifacio, Taguig City, Metro Manila,
Philippines, 12 December 2005
Section 14. Saving Clause
PRESIDENTIAL DECREE NO. 40

ESTABLISHING BASIC POLICIES FOR THE ELECTRIC POWER INDUSTRY

WHEREAS, one of the primary concerns of General Order No. 1 dated September 22,
the government in promoting the economic 1972, do hereby order and decrees, as part
welfare of the people is to hasten the of the law of the land, the following basic
electrification of the entire country, more policies for the electric power industry:
particularly the rural areas; and
(1) The attainment of total electrification
WHEREAS, it is necessary to establish certain on an area coverage basis, which is a
basic policies for the attainment of said declared policy of the State, shall be
objective; effected primarily through:

NOW, THEREFORE, I, FERDINAND E. MARCOS, (a) The setting up of island grids
President of the Philippines, by virtue of the with central/linked-up generation
powers vested in me by the Constitution as facilities.
Commander-in-Chief of all the Armed Forces
of the Philippines, pursuant to Proclamation (b) The setting up of cooperatives for
No. 1081 dated September 21, 1972, and distribution of power.
(2) The setting up of transmission line grids (d) Other entities duly authorized
and the construction of associated subject to State regulation.
generation facilities in Luzon, Mindanao
and major islands of the country, including (4) Within the area embraced by a grid set
the Visayas, shall be the responsibility of up by the NPC, the State shall determine
the National Power Corporation (NPC) as privately-owned generating facilities
the authorized implementing agency of which should be permitted to remain in
the State. operation.

(a) Plant additions necessary to meet (5) It is the ultimate objective of the State for
the increase in power demand of the NPC to own and operate as a single
the area embraced by any grid set up integrated system all generating facilities
by the NPC shall be constructed and supplying power to the entire area
owned by the NPC. embraced by any grid set up by the NPC.

(b) In areas not embraced by the
(6) The Power Development Council shall
NPC grid, the State shall permit
be expanded and strengthened to
cooperatives, private utilities and
make it more effective in the planning
local governments to own and
and implementation of power and
operate isolated grids and generation
electrification projects and in the re-
facilities, subject to State regulation.
direction and re-orientation of the
(3) The distribution of electric power various sectors of the industry towards
generated by the NPC shall be undertaken national development goals.
by:
Done in the City of Manila, this 7th day of
(a) Cooperatives
November, in the year of Our Lord, nineteen
(b) Private utilities
hundred and seventy-two.
(c) Local governments

EXECUTIVE ORDER NO. 215

AMENDING PRESIDENTIAL DECREE NO. 40 AND ALLOWING THE PRIVATE SECTOR TO GENERATE
ELECTRICITY

WHEREAS, Presidential Decree No. 40 places WHEREAS, the government, as a matter of

the responsibility of setting up transmission policy, is encouraging the private sector to
line grids and the construction of associated participate in economic development and
generation facilities in Luzon, Visayas, has started to disengage in areas which can
Mindanao and the major islands of the be adequately handled by the private sector;
country to the National Power Corporation
(NPC); WHEREAS, the generation of electricity
by the private sector can provide a means
WHEREAS, the generation of electricity, of increasing power capacity to meet the
unlike the transmission and distribution of projected increase in power demand in the
electricity, is not a natural monopoly and can future without in any way requiring financial
be undertaken by more than one entity; assistance or guarantee from the government;

WHEREAS, there is, on the other hand, SEC. 2. Rules and regulations to govern private
an imperative need to rationalize the sector involvement in power generation
development of energy resources and the shall be formulated by the National Power
operation of electric generating facilities in Corporation for areas within the National
the power grid; Power Corporation grids, and the National
Electrification Administration for areas
NOW, THEREFORE, I, CORAZON C. AQUINO, outside the National Power Corporation
President of the Philippines, do hereby order: grids. Such rules and regulations shall be
made subject to consultation with concerned
SECTION 1. The strategic and rational agencies including the private sector and
development of the country’s power grids the approval of the Office of Energy Affairs.
shall be the responsibility of the National These rules and regulations shall include the
Power Corporation. Accordingly, the following:
setting up of transmission line grids and the
construction of associated generating facilities (a) Qualifications for accrediting private
in Luzon, Visayas, and Mindanao, including sector generations;
the major islands of the country, to meet the
power demand, shall be the responsibility of (b) Procedures for applying for accreditation
the National Power Corporation. However, as a private sector generator of electricity;
private corporations, cooperatives or similar
associations shall be allowed to construct (c) Obligations of private sector generators
and operate the following types of electric which shall include efficiency standards
generating plants, subject to the rules to ensure reliability of power supply and
and regulations hereinafter adopted in the corresponding penalties for failure to
accordance with Section 2 hereof: comply with said standards;

(a) Cogeneration units, defined as production (d) Terms and conditions for the purchase or
of electric energy and forms of useful for the transmission/distribution, as the
thermal energy (such as heat or steam), case may be, of electricity generated by
used for industrial, commercial, heating non-National Power Corporation entities;
or cooling purposes through sequential and
use of energy;
(e) Other matters which shall be necessary
(b) Electric generating plants, intending to implement this Order.
to sell their production to the grids,
consistent with the developmental SEC. 3. The Office of Energy Affairs shall take
plans formulated by the National Power the necessary measures to ensure that the
Corporation; provisions of this Order are made effective.

(c) Electric generating plants, intended SEC. 4. The Department of National
primarily for the internal use of the Defense shall assist the National Power
owner, which also plan to sell excess Corporation, the private utilities and the
production to the grids; and electric cooperatives in providing security
to the generating plants to prevent power
(d) Electric generating plants, outside the black-outs, and in instituting the necessary
National Power Corporation grids, safeguards in cases of emergencies, including
intending to sell directly or indirectly to the training of Armed Forces of the Philippines
end-users. personnel in power generation operations.


SEC. 5. Numbers 2, 4, 5 and 6 of Presidential SEC. 6. This Executive Order shall take effect
Decree No. 40 are hereby amended fifteen (15) days after the issuance of the
accordingly. All laws, orders, issuances, rules rules and regulations for the implementation
and regulations or parts thereof inconsistent of this Executive Order.
with this Executive Order are hereby repealed
or modified accordingly. Done in the City of Manila, this 10th day of
July in the year of Our Lord, nineteen hundred
and eighty-seven.
ENERGY REGULATIONS NO. 1-95

RULES AND REGULATIONS IMPLEMENTING EXECUTIVE ORDER NO. 215 ON PRIVATE SECTOR
PARTICIPATION IN POWER GENERATION

Pursuant to Section 2 of Executive Order The DOE shall provide policy directions for
No. 215 (EO 215) allowing private sector the formulation of power system expansion
participation in power generation activities, plans and programs to achieve the above-
and relevant provisions of Republic Act No. stated objectives, following the approved
7638 (R.A. 7638) creating the Department of national economic plan and consistent with
Energy (DOE), the DOE hereby promulgates policies on environmental protection, and
the following amended Rules and Regulations conservation and maintenance of ecological
to implement the provisions of EO 215. balance.

PART I Pursuant to Section 1 of EO 215, the National
GENERAL PROVISIONS OF THE RULES AND Power Corporation (NAPOCOR) shall continue
REGULATIONS to be responsible for the strategic and
rational development of the country’s power
The succeeding Articles shall include the grids including the construction of associated
general provisions to be followed for all types generating facilities and the setting up of
of generating facilities owned by the private transmission line grids in Luzon, Visayas, and
sector participating in power generation. Mindanao. However, private corporations,
cooperatives or similar associations shall be
ARTICLE I allowed to construct and operate electric
STATEMENT OF POLICY, SCOPE generating plants and associated transmission
AND DEFINITION OF TERMS facilities.

SECTION 1. Statement of Policy. – Pursuant Furthermore, it is hereby declared the
to the General Provisions of R.A. 7638, it is policy of the State to promote competition
hereby declared a policy of the state to ensure in generation, and to increase the
a continuous, adequate and economic supply responsibilities of all utilities to perform their
of energy with the end in view of ultimately own planning, including the acquisition of an
achieving self-reliance in the country’s efficient portfolio of generation and demand-
energy requirements through the economic side resources. It is the intent of the State that
development of indigenous energy resources these rules promote the ability of all utilities
and through the efficient utilization of energy. to meet these expanded responsibilities, in

particular by ensuring transmission access of its power output to the grid, consistent
at fair prices and by establishing standard with the development plans formulated
NAPOCOR tariffs for services required by by NAPOCOR and/or electric utilities,
utilities when contracting for other sources of approved by the DOE.
generation.
(d) “Bottoming-cycle Cogeneration Facility”
SEC. 2. Scope. – These Rules and Regulations means a cogeneration facility in which
shall govern the relation between the DOE, the energy input to the system is first
NAPOCOR, the National Electrification applied to a useful thermal energy
Administration (NEA), the Energy Regulatory process, and the reject heat emerging
Board (ERB), private electric distribution from the process is then used for power
utilities and cooperatives, and such private production.
corporations, cooperatives or similar
associations as may be allowed to own (e) “Capacity” means the load for which a
and operate electric generating plants and generating unit, generating station, or
facilities that will sell all or excess electricity other electrical machine is rated by the
production to the NAPOCOR, other electric manufacturer.
utilities, and end-users in areas within and
outside the NAPOCOR transmission grids, (f) “Cogeneration Facility” means a
pursuant to Section 1 of EO 215. facility which produces electrical and/
or mechanical energy and forms of
These rules and regulations shall be the interim useful thermal energy (such as heat or
set of rules that shall be amended, replaced, steam), used for industrial, commercial,
or repealed in due time as restructuring heating, or cooling purposes, through the
and privatization efforts for the Philippine sequential use of energy.
power industry moves through ongoing and
anticipated phases towards an increasingly (g) “Coincident Maximum Demand” means
competitive and efficient industry structure the maximum demand at the instant of
for the Philippine power sector. greatest load of NAPOCOR.

SEC. 3. Definition of Terms. – As used in these (h) “Department of Energy” or “DOE” refers
rules and regulations, the following terms to the government agency created
shall have the following respective meanings: pursuant to R.A. 7638 promulgated on 9
December 1992.
(a) “Avoided Cost” means the incremental
cost that an electric utility would incur (i) “Developmental Plans”, refers the Power
towards meeting its anticipated power Development Program or PDP formulated
demand if such utility does not buy and updated yearly by the NAPOCOR
power from a Private Sector Generation and/or individual electric utilities.
Facility (PSGF).
(j) “Distribution System”, means the electric
(b) “Back-up Power” means electricity system of an electric utility which
supplied by NAPOCOR, or an electric delivers electricity form transformation
utility to replace electricity ordinarily points on the transmission system to the
generated by PSGF during unscheduled consumers or end-users.
outages of the latter.
(k) “Electric Cooperative” shall mean a
(c) “Block Power Production Facility (BPPF)” corporation under R.A. 6038 or P.D.
means any electric generating facility 269, as amended by P.D. 1645, or a
intended primarily to sell all or the bulk
cooperative supplying or empowered to (r) “Energy Resource Development Bureau”
supply electric service. or “ERDB” refers to the Bureau under
the DOE that shall, among others, assist
(l) “Electric Energy”, as commonly used in the formulation and implementation
in the electric utility industry, means of policies to develop and increase the
kilowatt-hours. domestic supply of local energy resources
like fossil fuels, nuclear fuels, hydropower
(m) “Electric Utility System” refers to the and geothermal resources.
distribution system of an electric
cooperative, local-government-owned (s) “Total Energy Input”, for purposes
and privately-owned electric utility of calculating thermal efficiencies of
operating within the NAPOCOR and cogeneration facilities, is defined as the
electric utility power grids. total kilograms of fuel used multiplied by
the Higher Heating Value (HHV) of the
(n) “Electric Utility” refers to the electric fuel input/s as received.
cooperative, local-government-owned
and privately-owned electric utility (t) “Franchise Area” shall mean a
operating within the NAPOCOR grids or geographical area franchised to a
other electric systems. public service entity such as: electric
cooperative, local government or
(o) “Energy Industry Administration Bureau” privately-owned electric utility system.
or “EIAB” refers to the Bureau under the
DOE that shall, among others, assist in (u) “Grid” means the electrical system
the formulation of regulatory policies to of interconnected transmission lines,
encourage and guide the operations or substations and generating plants of
both government and private entities NAPOCOR or the concerned electric
involved in energy resource supply utility, as the case may be.
activities including independent power
production and electricity distribution. (v) “Host Utility” means the franchised
electric utility operating nearest to
(p) “Energy Planning and Monitoring Bureau” where, or within whose area a qualified
or “EPMB” refers to the Bureau under the PSGF is located.
DOE that shall, among others, supervise,
coordinate, and integrate the formulation, (w) “Incremental PSG Power” means
monitoring, and review of programs and electricity supplied by NAPOCOR or an
plans for energy supply development electric utility, regularly used by an owner
such as power development, local energy of a qualified private sector generation
resource development and production, facility in addition to that which the
and energy importation. latter generates itself. It is the difference
between the total electricity requirement
(q) “Energy Regulatory Board” or “ERB” of a private sector generator and the
refers to the quasi-judicial agency created amount it generates.
under Executive Order 172, dated 8 May
1987, which, among other functions, fixes (x) “Interconnection” means the connection
and regulates the prices of petroleum of a generating facility or a power
products and the power rates of electric distribution facility to an electric utility
utilities, now including the NAPOCOR system or the NAPOCOR grid.
and the electric cooperatives, pursuant
to Section 18 of R.A. 7638. (y) “Interconnection Costs” means the
costs of all necessary interconnecting
electrical equipment, protective devices (g.1) “Primary Energy Source” means the fuel
and control equipment needed by a used for the generation of electricity,
private sector generator for its PSGF to except that such terms do not include:
permit interconnected operations with
NAPOCOR or an electric utility. (1) The minimum amounts of fuel
required for ignition, start up, testing,
(z) “Interruptible Power” means electricity flame stabilization, and control uses,
supplied by NAPOCOR or an electric and
utility to private sector generator subject
to interruption by the former. (2) The minimum amounts of fuel
required to alleviate or prevent:
(a.1) “Maintenance Power” means electricity
supplied by NAPOCOR or an electric (i) unanticipated equipment
utility, to a private sector generator outages, and
whose PSGF is undergoing scheduled
maintenance work. (ii) emergencies, directly affecting
the public health, safety or
(b.1) “Mini-Hydro Facilities” means hydro welfare, which would result
facilities with capacities of 101 kilowatts from electric power outages.
to 10,000 kilowatts.
(h.1) “Private Sector Generation Facility,
(c.1) “National Electrification Administration” (PSGF)” means:
or “NEA” means the corporation,
wholly-owned or controlled by the (1) any cogeneration facility meeting
government, created under the the minimum thermal efficiency
provisions of Presidential Decree No. standards set by the DOE for
269, as amended, of 06 August 1973, cogeneration systems, or
and tasked primarily to administer the
rural electrification program. (2) any renewable resource power
production facility, or
(d.1) “National Power Corporation” or
“NAPOCOR” means the corporation, (3) any electric generating facility that
wholly-owned and controlled by shall use indigenous energy resources
the government, formed under the as its primary energy source, or
provisions of Republic Act No. 6395
of 10 September 1971 and tasked (4) any electric generating facility,
primarily to undertake the development particularly a Block Power Production
of hydroelectric generation of power Facility, intended primarily to sell
and the production of electricity from all the bulk of its power output
nuclear, geothermal and other sources, to the grid, consistent with the
as well as the transmission of electric development plans formulated by
power on a nationwide basis. NAPOCOR and/or electric utilities,
and approved by the DOE.
(e.1) “Peak Demand” means the maximum
integrated load demand occurring for (i.1) “Private Sector Generator” refers to the
thirty (30) minutes continuously. owner and/or operator of the accredited
PSGF.
(f.1) “Person” means any natural person, firm,
association, corporation, business trust
and partnership.
(j.1) “Purchase” means the purchase of the reject heat recovered from power
electricity by NAPOCOR or an electric production then used to provide useful
utility from a private sector generator. thermal energy.

(k.1) “Rate” means any price, tariff or charge, (s.1) “Uncontrollable Forces” means any
as classified by NAPOCOR or the electric occurrence beyond the control of
utility with respect to sale or purchase a party which causes that party to
and/or wheeling of electricity. be unable to perform its obligations
and which the party has been unable
(l.1) “Renewable Energy Sources” means to overcome by the exercise of due
sources of energy that are regenerative diligence, including but not limited to
or virtually inexhaustible such as flood, drought, earthquake, storm, fire,
biomass, solar, wind, geothermal or pestilence, lightning and other natural
hydro, and also means by-product catastrophes, epidemic, war, riot, civil
materials that, but for their use as a disturbance or disobedience, action
source of energy would be considered or inaction of legislature, judicial or
waste. regulatory agencies, or other proper
authority affecting the operation
(m.1)“Renewable Resource Power Production of the PSGFs, failure or sabotage of
Facility (RRPPF)” means a facility facilities which have been maintained in
which produces electricity by the use accordance with good engineering and
of renewable energy resources as its operating practices in the Philippines.
primary energy source.
(t.1)
“Useful Energy Output”, for purposes
(n.1) “Sale” means the sale of electricity of calculating thermal efficiencies of
by NAPOCOR or an electric utility to a cogeneration facilities, is defined as the
private sector generator. sum of electricity and/or mechanical
power plus the useful heat in the steam
(o.1) “Spinning Reserve” means generating or hot exhaust gases and such other
capacity that is on-line and ready to take thermal energy recovered for useful
load, but in excess of the current load of purposes.
the electric system.
(u.1)“Wheeling” means the provision of
(p.1) “System Emergency” means a condition electric energy transmission services by
on NAPOCOR’s or an electric utility’s NAPOCOR or an electric utility for the
system which is likely to result in purpose of enabling the owner of an
imminent significant disruption of accredited PSGF to transmit power to
service to customers or is imminently another system or end-user.
likely to endanger life or property.
ARTICLE II
(q.1) “Thermal Efficiency”, as it pertains to JURISDICTION OF THE
cogeneration facilities, is defined as the DOE, NAPOCOR, NEA AND ERB
ratio of useful energy output to the total
energy input. SECTION 1. Jurisdiction of the DOE. – The
DOE shall have overall jurisdiction in the
(r.1) “Topping-cycle Cogeneration Facility” accreditation of qualified Private Sector
means a cogeneration facility in which Generating Facilities (PSGFs). As part of its
the energy input to the facility is first rule-making powers granted under R.A. 7638,
used to produce useful power with the DOE shall have the authority to amend

these Rules and Regulations as may be programs which reflect an efficient portfolio
necessary if the common good so requires, as of generation and demand-side resources,
determined upon public hearing to ascertain for the DOE’s review and approval, indicating
the nature of the exigency or cause requiring projects to be undertaken through private
the introduction of amendments. Pursuant sector participation, the justifications for such,
to Section 12 (c) of R.A. 7638, the review, and indicative timetables for undertaking
evaluation, and accreditation of qualified competitive procurement of each of the
private sector proposals shall be undertaken listed projects.
by the EIAB of the DOE, based on the
procedures and criteria for accreditation set NAPOCOR and/or individual electric utilities
forth in these Rules and Regulations. shall seek the DOE’s prior approval to
implement generation projects not included
The Director of the EIAB shall have in the approved power development plans of
the authority to issue Certificates of the respective electric utilities.
Accreditation, as well as denials of requests
for accreditations, as the case may be, for and SEC. 3. Jurisdiction of the NEA. – Pursuant to
in behalf of the DOE. Decisions of the EIAB the NEA’s role as a developmental and financial
as regards applications for accreditations as a institution to electric cooperatives, the NEA
qualified PSGF are appealable within a period shall make appropriate recommendations
of thirty (30) days to the Secretary of the DOE, to the DOE regarding applications of electric
who in turn must decide on the case within cooperatives to build and operate power
sixty (60) days after receipt of the appeal. generation facilities for self-generation, as
defined and allowed in the relevant provisions
SEC. 2. Jurisdiction of NAPOCOR. – NAPOCOR of Part IV of these Rules and Regulations,
shall have responsibility for the formulation or applications of electric cooperatives for
and implementation of such programs as authority to contact their power supply
are necessary to ensure the reliability of requirements with PSGFs, consistent with
electricity throughout the country’s power the provisions of Part III of these Rules and
grids, consistent with the general and Regulations.
specific policies adopted by the DOE. In this
regard, NAPOCOR may undertake required Such endorsement by the NEA shall consider
generation and transmission projects through the impact of an electric cooperative’s power
private sector participation, subject to the generation proposal on the latter’s ability
provisions of these Rules and Regulations, to render efficient and reliable service to
and supplemented by Republic Act No. its existing customers, to expand its service
6957 (“An Act Authorizing the Financing, coverage to non-electrified areas, and to
Construction, Operation and Maintenance of continue its debt service to the NEA. In
Infrastructure Projects by the Private Sector endorsing a cooperative’s application, the NEA
and For Other Purposes”), the amendments shall make no representation as to the overall
thereto, and its implementing guidelines. viability of the cooperative’s operations.
Pursuant to NAPOCOR’s functions as a bulk
power generation and transmission utility, SEC. 4. Jurisdiction of the ERB. – The ERB shall
high-voltage wheeling of electricity generated have jurisdiction over the implementation
by qualified PSGFs to the concerned electric of regulations concerning power rates of
utility or end-user shall be provided by investor-owned electric distribution utilities,
NAPOCOR, where necessary. electric cooperatives, and NAPOCOR. Such
authority shall include the review and
The DOE shall require NAPOCOR and individual approval of tariff schedules for wheeling, back-
electric utilities to submit power development up and maintenance power, incremental PSG

power, and reserve capacities carrying fees, provisions of Part IV for “Electric Utility-
as well as the review and approval of power Owned Generation Facilities”.
purchase agreements of NAPOCOR and other
franchised electric utilities between qualified (c) Companies or consortium of companies,
PSGFs with respect to the reasonableness of whether private or government-owned,
power purchase rates and their corresponding primarily engaged in indigenous energy
impacts on electric utilities’ rates of return, as upstream exploration, development
well as on end-user tariffs. and production activities, may own,
construct and operate generation
The ERB shall hear and arbitrate disputes facilities to the extent that the primary
between and/or among franchised electric energy source in power generation shall
utilities, NAPOCOR, and qualified PSGFs on come from the local production of such
matters which have implications on rates of companies or consortiums of companies,
NAPOCOR and/or electric utilities. and subject to limitations provided by
relevant legislations, regulations, and/or
ARTICLE III service contract terms of the DOE, and
QUALIFICATIONS OF A PRIVATE SECTOR the specific provisions on Block Power
GENERATION FACILITY AND A PRIVATE Production Facilities (BPPFs), where
SECTOR GENERATOR applicable.

SECTION 1. Ownership. – Qualifications as Majority interest of NAPOCOR and/or any
to ownership of a PSGF shall be any of the other electric utility on the equity of a PSGF
following: shall be considered as ownership by an
electric utility, and shall, thus, be subject
(a) A PSGF may be constructed, owned to applicable utility regulations. A PSGF in
and operated by private persons, which NAPOCOR and/or any other utility has
private corporations, cooperatives or minority interest, and in which the majority
other similar associations not primarily interest is being held by non-utility companies
engaged in the transmission and/or shall be governed by applicable laws other
distribution of electricity, and shall be than for electric utilities.
governed by applicable Philippine Laws
on corporations or similar associations For entities availing of incentives offered
as to registration, independent auditing, under the government’s annual Investment
taxation and other related matters as Priorities Plan, such entities shall be guided
provided by said laws. Foreign entities by relevant legislation thereto.
may participate in electricity generation
subject to applicable Philippine laws. SEC. 2. Technical and Financial Qualifications.
– Private Sector Generators, more particularly
(b) Private corporations, cooperatives and private corporations, cooperatives, and
similar associations primarily engaged similar associations seeking to construct, own,
in the transmission and/or distribution and operate power generation facilities under
of electricity, referred to in these Rules these Rules and Regulations, must possess
and Regulations as electric utilities, the technical capability (i.e., engineering and
may own, construct ands operate management qualifications) and a proven
generating facilities, subject to electric track record in the field of power generation,
utility regulations concerning rates, particularly in the generation technology
financial limitations, taxes and other laws being proposed. A Private Sector Generator
applicable to their operations as electric must likewise demonstrate the financial
utilities, and subject to the specific strength and capability to undertake the scale

of project being proposed under these Rules internationally-accepted standards in
and Regulations. engineering, operations and reliability.
Cogeneration facilities utilizing fossil fuels,
SEC. 3. Facility Classification. – A PSGF or a blend of fossil and renewable energy
referred to in this Part of these Rules and sources, shall be required to meet the
Regulations shall include the following minimum thermal efficiency standard set
electric generating plants: forth in Part II of these Rules and Regulations,
for purposes of availing incentives offered
(a) Electric generating facilities intended under the Investment Priorities Plan of the
primarily to sell all the bulk of its power Board of Investments and/or securing a DOE
production to the grid (i.e., to NAPOCOR accreditation as a qualified Cogeneration
or to other electric utilities), consistent facility under these Rules and Regulations.
with the developmental plans formulated
by NAPOCOR and/or electric utilities and SEC. 6. Economic Criteria. – Any proposed
approved by the DOE; electric generating facility should be able to
demonstrate its potential for providing net
(b) Cogeneration facilities such as topping- foreign exchange savings to the country, by
or bottoming-cycle facilities, utilizing virtue of:
fossil fuels or a blend of fossil fuels
and renewable energy forms, meeting (a) generating electric energy more
engineering, operating and efficiency efficiently or cheaper than can otherwise
standards as prescribed in Section 5 of be generated by existing or programmed
this Article; generation facilities under the power
development plans of NAPOCOR and/or
(c) Renewable Resource Power Production other electric utilities;
Facilities such as those using biomass,
solar, wind, geothermal, hydro or wastes (b) using indigenous and/or renewable
as the primary source of energy; and energy sources; and

(d) Electric generating facilities that shall (c) accessing lower costs of capital, cheaper
use indigenous energy resources as their plant investment, and/or locally
primary fuels. manufactured equipment..

SEC. 4. Size of Generating Units. – The ARTICLE IV
maximum size of a generating unit of a GENERAL PROCEDURES FOR APPLYING
PSGF shall be limited to the existing largest FOR ACCREDITATION AS A PRIVATE SECTOR
generating unit size or 10% of the coincident GENERATION FACILITY
maximum demand of the concerned
NAPOCOR grid or as allowed by DOE. For SECTION 1. Contents of Application. – The
areas not covered by the main transmission contents of application for accreditation as a
networks of NAPOCOR, the size of generating qualified PSGF should generally contain the
units shall be limited by the power demand following information:
in the concerned isolated area, island or grid,
taking into account reasonable projections (a) Name and address of the applicant and
of load growth over the period of PSGF location of the proposed facility;
commissioning.
(b) Project organizational setup;

SEC. 5. Engineering, Operating and Efficiency
(c) Names of cooperating/participating
Standards. – A PSGF shall be guided by
companies, equity participation,
incorporation documents, audited and IV, or as may be deemed necessary
financial statements for the last two by the EIAB for evaluation purposes.
fiscal years, and records of successful
experience in similar activities in the last SEC. 2. Facilities Qualified for Accreditation.
five (5) years; – A Private Sector Generation Facility
(PSGF) which meets the qualifications for
(d) Project financing plans; accreditation set forth in Sections 1 through
6 of Article III is a qualified PSGF.
(e) Administrative and technical manpower
complement; SEC. 3. Accreditation by the EIAB. – The owner
or operator of a proposed PSGF intending to
(f) Facility classification and general plant sell all or its excess power production to the
description grid, and whether the facility is existing or
shall be constructed, and whose generating
(g) Sale of PSGF generation (whether unit is subject to the limitations under Article
generation is solely for sale to the grid, III hereof, shall apply for accreditation as a
dedicated to an electric utility, or for qualified PSGF to the EIAB.
internal use with provision for sale of
excess power to the grid); Provided, That all the information
requirements shall have been complied
(h) Projected mode of operation (baseload with, the EIAB shall approve or deny any
or peaking); application for accreditation as a qualified
PSGF, based on the foregoing qualifications
(i) Power and annual energy production for accreditation in Article III, within two (2)
capacity in (kW and kWh, respectively) of months from the date of application, unless
the proposed facility; EIAB shall have required the submission of
additional information, or postponement of
(j) Primary energy source (fuel) of the final action on an application for reasonable
facility, heating value, and net plant heat grounds.
rate;
Any order postponing final action on
(k) Projected forced outage rate, application shall state specifically the grounds
maintenance days, dependable capacity, for postponement, and the date on which a
and station energy use; final ruling shall be issued.

(l) Projected economic life of project and The EIAB shall issue Certificates of
proposed duration of interconnection/ Accreditation to PSGFs which are found
cooperation period; to have qualified under these Rules and
Regulations.
(m) Interconnection plans with NAPOCOR or
other electric utility; SEC. 4. EIAB Issuance of Provisional
Accreditations. – The EIAB may issue
(n) Detailed project timetable, including provisional accreditations to PSGFs qualifying
target periods for financial closing, under Sections 1, 3, 4, 5 and 6 of Article III
groundbreaking, installation of of this Part of the Rules and Regulations
major plant equipment, testing and if the Private Sector Generator is able to
commissioning of the facility; demonstrate in its formal application sound,
reasonable, and time bound development
(o) Any other information as may be required plans, consistent with overall timetables for
under the specific provisions of Parts II, III project commissioning, for the formation
of a technically and financially qualified utility and the organization, existing or newly
consortium or collaborative of corporations created, owning the PSGF shall be based on
to undertake the proposed PSGF. documentary support such as Letters of Intent
and Memorandum of Agreement made and
In all cases, notwithstanding compliance with signed during any negotiation.
Sections 1 through 6 of Article III, the EIAB
may impose the time-bound achievement SEC. 7. Action on Modification of a PSGF.
of specific project milestones with the end – Prior to undertaking any substantial
in view of ensuring the timely of the timely alteration or modification of a PSGF which
completion of the proposed facility, as has been certified under these Rules and
well as for monitoring the progress of the Regulations, the owner or operator of such
provisionally-accredited PSGF. qualified PSGF shall apply to the EIAB for a
ruling that the proposed alteration would not
Provisional accreditations issued by EIAB result in a revocation of the facility’s qualified
shall have a maximum validity period of status. The term “substantial alteration or
one (1) year. The EIAB may decide on the modification of a qualified PSGF” means such
extension or non-extension of the provisional alteration, modification or other changes
accreditation on the basis of progress made as will materially affect the accuracy of the
by the proponent towards complying with the information submitted pursuant to Article III
conditions of the provisional accreditation, and Section 1 of this Article under this Part of
ensuring timely completion of the project, the Rules and Regulations.
and EIAB’s evaluation of the continued
viability of the proposed generation project. SEC. 8. Revocation of Qualified Status. –
The EIAB may revoke the qualified status
SEC. 5. Non-transferability of Accreditation. of a PSGF which has been accredited under
– Accreditation issued by the EIAB shall this Article if such facility fails to comply
not be transferable or assignable except with the requirements of these Rules
to subsidiaries, affiliated companies and/ and Regulations, or any of the conditions
or partners, determined to be technically contained in the Certificate of Accreditation,
and financially-qualified by the EIAB, of the whether provisional or not, issued by the
originally-accredited owners/proponents of EIAB. The EIAB shall advise relevant parties
the qualified PSGFs. of its decision to revoke the qualified status of
a PSGF, citing the reasons for such revocation.
Transferability of accreditation issued to
electric utilities shall be governed by the SEC. 9. EIAB Monitoring of Accredited PSGFs.
relevant provisions of Part IV on “Electric – Owners/proponents of accredited PSGFs
Utility-Owned Generation Facilities”. shall submit quarterly status reports on the
progress of each accredited project to the
SEC. 6. Representation During Accreditation EIAB, and shall immediately inform the EIAB
and Negotiation. – Where proposals for of any substantial changes in the project
PSGFs are submitted by persons or entities, that may have an impact on the PSGF’s
foreign or local, other than the organization qualified status. The PSGF shall likewise
which is or will be set up to construct, own and urgently advise the EIAB on the attainment of
operate the facilities, agreement made during project milestones (e.g., site groundbreaking,
any negotiation after accreditation shall not issuance of environmental clearances and
legally bind parties involved thereto until such other permits, financial closing, etc.) for
time when a contract for the sale of power is monitoring purposes.
agreed upon and signed. Preparation of such
contract between NAPOCOR or the electric The EIAB shall render quarterly reports to the
DOE Secretary on the progress of accredited
projects. Copies of these reports shall be ARTICLE V
regularly furnished to concerned bureaus RIGHTS OF NAPOCOR
and agencies of the DOE for information and AND THE CONCERNED ELECTRIC UTILITY
coordination. ON THE DESIGN AND OPERATION OF THE
PRIVATE SECTOR GENERATION FACILITY
SEC. 10. Generation by Cogeneration and
Renewable Resource Power Production SECTION 1. Right to Review. – NAPOCOR and/
Facilities (RRPPFs). – Proponents/owners or the concerned electric utility shall have the
of Cogeneration and Renewable Resource right to review the design of the qualified
Power Production Facilities (RRPPFs) shall PSGF and its interconnection and fuel storage
be further guided by the specific provisions facilities. Any flaws perceived by NAPOCOR
under Part II of these Rules and Regulations. and/or the concerned electric utility in the
design of the PSGF shall be described and
SEC. 11. Generation by Block Power communicated in writing to the owner
Production Facilities (BPPFs). – Generation of the PSGF, with a copy furnished to the
projects under any power development plan EIAB. Internationally-accepted engineering
approved by the DOE, more particularly standards shall be utilized as reference in this
referred to as Block Power Production review process.
Facilities (BPPFs), shall be further guided by
the specific provisions under Part III of these SEC. 2. Right to Monitor. – NAPOCOR and/
Rules and Regulations. or the concerned electric utility shall have the
right to monitor the construction work and
SEC. 12. Generation by Companies or construction schedule, start-up, operation
Consortiums Primarily Engaged in Energy and maintenance, and fuel inventory
Upstream Operations. – Construction and practices of the PSGF, and shall have the right
operation of PSGFs by energy upstream to consult with and make recommendations
companies or consortiums shall be further to the owner of the PSGF.
guided by the relevant provisions of Part II
or Part III of these Rules and Regulations, as ARTICLE VI
applicable. OBLIGATIONS OF NAPOCOR, ELECTRIC
UTILITIES, AND OWNERS OF QUALIFIED
SEC. 13. Generation by Electric Utilities. – PRIVATE SECTOR GENERATION FACILITIES
PSGFs owned by electric utilities whose
facilities are intended for self- generation shall SECTION l. Interconnection of Accredited
be further guided by the specific provisions PSGFs. – NAPOCOR and franchised electric
under Part IV of these Rules and Regulations. utilities with transmission and/or distribution
facilities of 69 KV or above shall file with the
SEC. 14. Generation by Non-utilities Primarily ERB standard interconnection policies and
for Internal Use. – A non-utility PSGF whose procedures, and wheeling tariffs for the ERB’s
generation is solely for the owner’s internal approval.
use need not apply for accreditation with the
EIAB, but shall inform the EIAB in writing of NAPOCOR, privately-owned electric utilities,
its power generation plans. If in the future and electric cooperatives connecting with a
there is a likelihood that sale to NAPOCOR PSGF shall submit to the ERB a copy of any
or electric utilities would occur, the PSGF interconnection agreement for its review
shall apply for accreditation with the EIAB and approval, in line with ERB’s rate-setting
following the provisions of these Rules and function. The interconnection agreement
Regulations. shall include the agreements reached on
matters pertaining to rates of purchase and

sales, operating and maintenance schedules, SEC. 4. Safety Requirements. – The owner of
procedures for dispatch, protective and the PSGF shall provide and install protective
metering devices and other items that devices in their facilities as a safeguard
are important to both parties. Copies of from any NAPOCOR or electric utility system
such interconnection agreements shall disturbances.
be submitted to the EIAB for monitoring
purposes. SEC. 5. Periodic Reporting to the EIAB and the
Concerned Electric Utility.– The owner of the
SEC. 2. Transmission to Electric Utilities PSGF shall regularly submit to the concerned
(Wheeling). – Wheeling of power shall be electric utility and the EIAB in a prescribed
guided by standard interconnection policies, form, operating, and other information as
procedures, and tariffs submitted to and may be required by the utility and the EIAB
approved by the ERB. Wheeling rates, for monitoring and planning purposes. The
charges, terms, and conditions shall permit EIAB shall furnish copies of such reports to
the recovery by such utility of all the costs other relevant units and line agencies of the
incurred in connection with the transmission DOE.
and necessary associated services, and
the costs of any required expansion of ARTICLE VII
transmission facilities. The appropriate share, PURCHASE OF POWER
if any, of legitimate, verifiable, economic costs
associated with the provision of transmission SECTION 1. General Provision. – NAPOCOR
services may be included in these charges, and/or the concerned electric utilities shall
while taking into account any benefits of purchase that power (electric energy and/
providing such services to the transmission or capacity) needed to serve its anticipated
system. demand (including reasonable reserve
requirements) at rates that shall not be
Such rates, charges, terms, and conditions more than their “avoided cost”. “Avoided
should promote the economic and efficient cost” as herein defined shall mean the least
transmission and generation of electricity, and incremental cost that an electric utility would
shall be just and reasonable, and not unduly incur towards meeting its anticipated power
discriminatory or preferential. Rates, charges, demand, if such utility does not buy power
terms, and conditions for transmission from a PSGF.
services provided shall ensure that, to the
extent possible, costs incurred in providing SEC. 2. Purchase Rates Qualification. – Rates
wholesale transmission services, as well as for purchase shall:
property allocated to the provision of such
services, are recovered from the concerned (a) Be just and reasonable to the electric
PSGF, and not from a transmitting utility’s customers of NAPOCOR and/or other
existing wholesale, retail, and transmission concerned electric utilities, and in the
customers. Utility regulations concerning public interest; and
rates, financial limitations, and taxes shall
apply to wheeling tariffs of NAPOCOR and (b) Be in accordance with guidelines set by
other electric utilities. the EIAB on this matter where full and/
or excess energy production shall be
SEC. 3. Provision on Spinning Reserve. – The sold to the systems of concerned electric
owner of the PSGF shall maintain a continuous utilities. An acceptable competitive
spinning reserve at all times to the extent procurement scheme (e.g., bidding) is
possible and under terms to be agreed upon one means of setting avoided cost as well
with NAPOCOR or the concerned electric as reasonable purchase rates.
utility.
SEC. 3. Adjustments in Financial Accounting. (1) The ability of the NAPOCOR or the
– NAPOCOR and the concerned electric concerned electric utility to dispatch
utilities shall accordingly adjust their financial the qualified PSGF;
accounting systems and procedures resulting
from purchases of electricity from private (2) The expected or demonstrated
sector generators. The rate of return on rate reliability of the qualified PSGF, and
base levels shall then be determined after the corresponding value of reserve
all adjustments have been made and set in capacity required to be carried by
place. NAPOCOR and/or other electric
utilities;
SEC. 4. Determination of Avoided Cost. – The
EIAB, in coordination with the ERB and in (3) The extent to which scheduled
consultation with NAPOCOR, electric utilities outages of the qualified PSGF can be
and other relevant private sector entities, shall usefully coordinated with scheduled
formulate and adopt a standard methodology outages of the NAPOCOR or the
for the calculation of NAPOCOR’s and electric utility’s facilities;
electric utilities’ avoided costs. Criteria for
competitive procurement schemes (e.g., (4) The individual and aggregate value
bidding) shall also be formulated to define of energy and capacity from qualified
acceptable means of solicitation that can PSGFs on NAPOCOR’s or the electric
also provide the basis for determining an utility’s system;
electric utility’s avoided costs and reasonable
purchase rates. Said methodology and (c) The ability of NAPOCOR or the affected
criteria shall be formulated by the EIAB within electric utility to avoid costs, including
three (3) months from the effectivity of these the deferral of capacity additions and the
Rules and Regulations, and disseminated to reduction of fossil fuel use;
relevant agencies, including ERB, NAPOCOR,
and concerned electric utilities for information (d) The costs of saving resulting from
and immediate adoption. variations in line losses from those that
would have existed in the absence of
The EIAB, to the extent possible, shall take purchases from a qualified PSGF; and
into account the following factors in its
formulation of a standard methodology for (e) The costs of environmental mitigation
the calculation of avoided cost: measures necessary to ensure compliance
with regulations and standards on
(a) The structure of the incremental costs environmental management. For
that would have been incurred by purposes of promoting the economic
NAPOCOR and/or other electric utilities utilization of specific indigenous and
had they built the required generation renewable energy forms, the DOE may,
facilities and/or generated electric power in line with its rule-making powers, fix
themselves to serve its anticipated power purchase rates for electricity
demand (including reasonable reserve generated from such resources after due
requirements); consultation with relevant private and
government entities.
(b) The availability of’ capacity and energy
from n qualified PSGF during the ARTICLE VIII
system daily and seasonal peak periods, RATES FOR SALES
including, but not limited to:
SECTION 1. General Rules. – NAPOCOR or
any concerned electric utility shall sell to
any owner of a qualified PSGF electricity place and functioning properly.
requested by the latter. Except for backup
power, rates for sales of NAPOCOR and/or SEC. 2. Operating Structure. – The qualified
the concerned electric utility to the qualified PSGF directly connected to the NAPOCOR grid
PSGF shall be based on the net interchange of shall be operated by its owner in accordance
energy between the said qualified PSGF and with the terms of the interconnection
NAPOCOR or the concerned electric utility. If agreement with NAPOCOR and/or the
said interchange of energy results in requiring concerned electric utility with respect to
the PSGF to pay for electricity used, the the wheeling and/or purchase of electricity
applicable rates in this case shall be the rates generated by said PSGF.
stipulated in a contract between the qualified
PSGF and NAPOCOR or the concerned electric SEC. 3. Environmental Concerns. – Qualified
utility. PSGFs shall meet standards on environmental
management, including, among others, those
SEC. 2. Services to be Provided to any Qualified on air quality, noise levels, water quality, solid
PSGF. – As contracted with the owner of a waste, emission balances and controls, land
qualified PSGF, NAPOCOR or the concerned use and aesthetics as required by law through
electric utility shall provide: appropriate government agencies.

(1) Incremental PSG power; SEC. 4. Content of Contract. – Consistent with
these Rules and Regulations, all contracts
(2) Back-up power;
between the owners of PSGFs, and NAPOCOR
(3) Maintenance power; and or the concerned electric utility shall include,
(4) Interruptible power. among others, the following:

SEC. 3. Rates for Back-up and Maintenance (a) Identification of Parties;
Power. – NAPOCOR and the individual
electric utilities shall submit to the ERB, for (b) Recitals (rationale of contract);
the latter’s review and approval, rates for
sales of back-up and/or maintenance power (c) Considerations (general agreements);
to qualified PSGFs.
(d) Purchase and Sale (stipulation of power
ARTICLE IX purchase and sale);
OPERATING STANDARDS,
ENVIRONMENTAL CONCERNS (e) Conditions of Delivery:
AND OTHER MATTERS
(1) Point of Delivery
SECTION 1. Standards for Operations and
Reliability. – Qualified PSGFs, NAPOCOR, and (2) Character of Service ((technical
other electric utilities shall follow established specifications for expected power
internationally-accepted engineering output)
standards to ensure safety, system security,
and reliability for interconnected system (3) Power Factor
operations. NAPOCOR and the concerned
electric utilities shall have the right to (4) Continuity/reliability
physically inspect the power installations and
witness the testing and commissioning of the (f) Rates for Purchase from Facility and
PSGF that will be interconnected to its system Adjustment clauses;
to ensure that all necessary equipment are in

(g) Rates for Sale to Facility and Adjustment (p) Liability of Each Party with Respect to
clauses; Operations;

(h) Billing Periods and Payment Terms; (q) Duration of Contract and Conditions for
Contract Cancellation;
(i) Penalty and Discount Clauses;
(r) Provision for Security; and
(j) Rights and Obligations of NAPOCOR/
Electric Utility and PSGF as to: (s) Additional Provisions.

(1) Ownership, Design, Operation and SEC. 5. Force Majeure. – Neither party
Maintenance to a contract shall be in default if failure of
performance of the terms of the contract is
(2) Construction Requirements
caused by factors due to acts of God, nature,
(3) Plans and Specifications or uncontrollable forces.

(4) Inspection and Tests
PART II
(5) Change of Equipment SPECIFIC PROVISIONS FOR COGENERATION
AND RENEWABLE RESOURCE POWER
(6) Costs
PRODUCTION FACILITIES
(7) Control and Protective Apparatus
In addition to the provisions of Part I of
(8) Location these Rules and Regulations, the following
(9) Deliveries and Amount of Production Articles shall guide proponents/owners of
Cogeneration or Renewable Resource Power
(10) Notices Production Facilities (RRPPFs).
(11) Land Rights
ARTICLE I
(12) Regulatory Approvals DEFINITIONS OF COGENERATION
AND RENEWABLE RESOURCE POWER
(13) Codes and Standards
(14) Removal of Equipment
SECTION 1. Definition of Cogeneration
(15) Provisions for Contract Violation
Facilities. – Cogeneration facilities, as defined

in these Rules and Regulations, means
(k) Operations;
a facility which produces electrical and/

or mechanical energy and forms of useful
(1) Date of Operation
thermal energy (such as heat or steam),
(2) Operating Procedure used for industrial, commercial, heating, or
cooling purposes, through the sequential use
(3) Sell-back Conditions of energy. A cogeneration facility may either
be a topping-cycle or bottoming-cycle facility.
(l) Safety Requirements;
A topping-cycle cogeneration facility means
(m) Force Majeure; a cogeneration facility in which the energy
input to the facility is first used to produce
(n) Meter Provisions and Metering useful power with the reject heat recovered
Arrangements; from power production then used to provide
useful thermal energy, while a bottoming-
(o) Right to Access for Inspection, etc.;
cycle facility refers to a cogeneration facility is a qualified PSGF under these Rules
in which the energy input to the system is first and Regulations if it meets the general
applied to a useful thermal energy process, qualifications under Article III of Part I, and the
and the reject heat emerging from the thermal efficiency standard for cogeneration
process is then used for power production. projects, as defined in Section 2 of this Article.

SEC. 2. Definition of Renewable Resource SEC. 2. Thermal Efficiency Standards for
Power Production Facilities (RRPPFs). – Cogeneration Facilities. – In addition to
RRPPFs, as defined in these Rules and the general qualifications for accreditation
Regulations, refers to any facility which under Article III of Part I of these Rules and
produces electricity by the use of renewable Regulations, cogeneration facilities should be
energy resources as its primary energy able to achieve a minimum thermal efficiency
source. Renewable energy sources means of sixty (60) percent for purposes of availing
sources of energy that regenerative or incentives offered under the Investment
virtually inexhaustible such as biomass, solar, Priorities Plan of the Board of Investments
wind, geothermal or hydro, and also means and/or securing accreditation from the EIAB
byproduct materials that, but for their use as a qualified PSGF. The DOE shall review
as a source of energy, would be considered the applicability of such thermal efficiency
waste. standard for cogeneration from time to
time, considering the viability of efficiency
Primary energy source, on the other hand, advances in generation technologies, boilers,
means the fuel/s used for the generation and heat recovery systems.
of electricity, except that such terms do not
include: Thermal efficiency, as herein defined, means
the ratio of useful energy output to the total
(a) The minimum amounts of fuel required energy input, calculated on an annual basis.
for ignition, start up, testing, flame
stabilization and control uses, and Useful energy output, for purposes
of calculating thermal efficiencies of
(b) The minimum amounts of fuel required cogeneration facilities, is defined as the sum
to alleviate or prevent: of electricity and/or mechanical power plus
the useful heat in the steam or hot exhaust
(i) unanticipated equipment outages, gases, and such other thermal energy
and recovered for useful purposes.

(ii) emergencies, directly affecting the Total energy input, on the other hand, is
public health, safety or welfare, defined as the total kilograms of fuel used
which would result from electric multiplied by the Higher Heating Value (HHV)
power outages. of the fuel input/s as received.

ARTICLE II SEC. 3. Cogeneration Facilities Utilizing
QUALIFICATIONS OF RRPPFs AND Renewable Energy Sources. – Cogeneration
COGENERATION FACILITIES facilities utilizing renewable energy forms as
its primary energy source shall be classified as
SECTION l. Accreditation of RRPPFs and Renewable Resource Cogeneration Facilities
Cogeneration Facilities. – An RRPPF meeting for purposes of accreditation as qualified
the general qualifications under Article III PSGFs. Cogeneration facilities utilizing
of Part I of these Rules and Regulations is renewable energy sources and fossil fuels,
a qualified PSGF. A cogeneration facility either through a blend, combination, or

alternating use of such fuels, shall be treated final action on an application for reasonable
and evaluated as Cogeneration Facilities. By grounds.
virtue of this distinction, Renewable Resource
Cogeneration Facilities shall not be subject SEC. 2. Accreditation of Mini-Hydro Projects.
to minimum thermal efficiency standards – Applications concerning the construction
required for cogeneration facilities under and operation of mini-hydro facilities shall
Section 2 of this Article. be governed by the implementing rules and
regulations of Republic Act No. 7156 (Mini-
SEC. 4. Ownership of Cogeneration Facilities. Hydro Act of 1991), promulgated by the
– Any private corporation, cooperative, or Office of Energy Affairs in August 1992. Such
similar associations requiring thermal and applications shall be referred by the EIAB to
electric energy for industrial, commercial, the Energy Resource Development Bureau
heating, or cooling purposes (thermal (EBDB) of the DOE.
host) may own and operate cogeneration
facilities intended to supply their internal Evaluation and processing of such applications
requirements for thermal and electric energy, shall be undertaken by the Mini-Hydro
and to sell any excess power generation to Division of the ERDB. The ERDB shall inform
the grid. the proponents and the EIAB of its decision
to issue or deny a license to construct and
Private corporations, cooperatives, or similar operate mini-hydro facilities within a period
associations, other than the thermal hosts of four (4) months, provided all information
described above, shall be allowed to own requirements to process the application have
and operate cogeneration facilities, and to been submitted to the Mini-Hydro Division.
sell electric and thermal energy directly to The EIAB shall thereafter prepare and issue
the concerned thermal hosts, as well as to the appropriate accreditation certificates for
sell any excess power generation to the grid, mini-hydro projects approved by the ERDB.
under exclusive contracts with the thermal
host and/or concerned electric utility, and SEC. 3. Accreditation of Waste-to-Energy
subject to the provisions and limitations of Facilities. – Prior to filing an application
the Public Service Law. with the EIAB for accreditation as a qualified
PSGF under these Rules and Regulations,
ARTICLE III RRPPFs utilizing fuels derived from municipal
PROCEDURES FOR APPLYING FOR solid wastes, or by-product materials that,
ACCREDITATION AS A COGENERATION OR but for their use as a source of energy,
RENEWABLE RESOURCE POWER would be considered waste, shall first seek
PRODUCTION FACILITY an endorsement from the appropriate
government authority (i.e., the Presidential
SECTION 1. Period of Processing. – All Task Force on Solid Waste Management, the
Cogeneration and RRPPFs intending to sell the Department of Environment and Natural
excess or all its power production to NAPOCOR Resources) certifying that the proposed
or any electric utility and/or thermal host Waste-to-Energy facility is consistent with
shall apply for accreditation with the EIAB. the overall country framework for solid
Provided all requirements shall have been waste management. Such requirement may
complied with, the EIAB shall approve or deny be waived by the EIAB for agricultural and
any application for accreditation for qualified industrial wastes not generally classified as
PSGF status within one (1) month from the municipal solid wastes.
date of the application, unless the EIAB shall
have required the submission of additional Notwithstanding any endorsement
information, or ordered the postponement of or certification from the appropriate

government authorities on environmental/ SEC. 5. Contents of Applications for RRPPFs. –
waste management, qualified Waste-to- In addition to the general information
Energy facilities shall meet standards on requirements listed in Section 1, Article IV, Part
environmental management in accordance I of these Rules and Regulations, applications
with the provision of Section 3, Article IX, Part for accreditation as a qualified RRPPF shall
I of these Rules and Regulations. include detailed information on fuel supply,
collection, and delivery systems in the form
SEC. 4. Contents of Applications for of a feasibility or pre-feasibility study. The
Cogeneration Facilities. – In addition to the EIAB may require the submission of any other
general information requirements listed in information that may be necessary for the
Section 1, Article IV, Part I of these Rules and exhaustive evaluation of RRPPF proposals.
Regulations, applications for accreditation as
a qualified Cogeneration Facility shall contain ARTICLE IV
the following information: OBLIGATIONS OF NAPOCOR,
ELECTRIC UTILITIES, AND OWNERS OF
(a) Minimum, maximum, and average QUALIFIED RRPPFs AND COGENERATION
volumes of steam and/or thermal energy FACILITIES
required for industrial, commercial,
heating or cooling purposes, on a SECTION 1. Purchase of Electric Energy from
monthly and annual basis, together with Qualified RRPPFs and Cogeneration. –For
the required temperatures, pressures, facilities whose power production is also
and conditions of such volumes; intended for sale to the grid, the qualified
RRPPF or Cogeneration shall apply and
(b) Minimum, maximum, and average negotiate for the sale of its power with the
requirements of’ power and electric franchised electric utility within whose area
energy on a monthly and annual basis; said facility is located (host utility).

(c) A description of the basic industrial, If sale is hindered by any disagreement, the
commercial, heating, or cooling processes owner of the facility may negotiate with
requiring any amounts of thermal and/or NAPOCOR or any other electric utility for
electric energy; the latter to purchase its generation. If
after further negotiation NAPOCOR or the
(d) Single-line mass-balance and energy concerned electric utility shall not purchase
flow diagrams indicating volumes and the generation, the owner of the RRPPF or
conditions of exhaust gases, steam, heat, Cogeneration shall apply to the EIAB for a
and electric energy produced and utilized ruling that said facility shall sell to NAPOCOR.
at various points of the cogeneration
cycle; SEC. 2. Interconnection and Transmission
(Wheeling). – The host utility shall be
(e) Detailed calculation of the overall thermal obligated to interconnect the qualified
efficiency of the cogeneration system, RRPPF or Cogeneration facility and wheel the
including assumptions used for ambient electricity generated to a third party (electric
temperature, fuel heating values, and utility or end-user) through the former’s
other parameters; and transmission and/or distribution lines of 69
KV or higher. The rate for purchase by the
(f) Other information that may be required third party (electric utility or end-user) to
by the EIAB in evaluating a cogeneration which such electricity is transmitted shall be
proposal. accordingly adjusted to reflect line losses and
the corresponding wheeling charges of the
host utility.
SEC. 3. Interconnection Costs. – Upon SEC. 2. Purchases “as available”. – The
effectivity of an agreement for interconnection rates for purchases of energy and capacity
by the owner of the qualified RRPPFs or on an “as available” basis shall be based on
Cogeneration facilities and NAPOCOR or the NAPOCOR’s and/or the purchasing electric
concerned electric utility, NAPOCOR or the utility’s costs calculated at the time of delivery
electric utility may issue an order requiring the and stipulated in a contract to purchase.
owner of said RRPPF or Cogeneration facility Energy and capacity on an “as available” basis
to advance investments for the necessary shall mean electricity supplied by RRPPFs or
interconnecting electrical equipment and Cogeneration facilities to NAPOCOR and/or an
devices in accordance with appropriate electric utility following a schedule provided
electrical plans approved by NAPOCOR and/ by the RRPPF or Cogeneration owner as to
or the concerned electric utility. Repayment time and period and agreed to by NAPOCOR
for the investment on these facilities shall be or concerned electric utility.
done following arrangements mutually agreed
upon by contracting parties. Maintenance SEC. 3. Rates for Purchases of Power
costs for the interconnection facilities shall be Generated by RRPPFs and Cogeneration
borne by the concerned electric utility. Facilities with Capacities of less than 10,000
kilowatts. – NAPOCOR shall formulate and
For RRPPFs and cogeneration facilities with adopt, subject to ERB’s review and approval,
capacities of less than 10,000 kilowatts, a schedule of power purchase rates which
however, NAPOCOR or the concerned electric reflects the structure of capacity and energy
utility shall shoulder all costs needed for the costs of NAPOCOR for varying levels of
realization of the physical connection of the power availability and dispatchability. Such
PSGF to the former’s transmission facilities. power purchase rates shall be adopted as
Maintenance costs for the interconnection standard power purchase rates for RRPPFs
facilities shall also be borne by NAPOCOR or and Cogeneration facilities less than 10,000
the concerned electric utility. kilowatts upon ERB approval of such rates to
facilitate price negotiations with NAPOCOR
SEC. 4. System Emergencies. – RRPPFs and and/or other electric utilities and qualified
cogeneration facilities shall be obligated to RRPPFs or Cogeneration facilities.
provide power to NAPOCOR or the concerned
electric utility during system emergencies to PART III
the extent provided under their agreement. SPECIFIC PROVISIONS ON BLOCK POWER
ARTICLE V
RATES FOR PURCHASES The following Articles shall further guide
proponents/owners of Block Power
SECTION 1. Rate Satisfaction. – Rates Production Facilities (BPPFs), in addition to
for purchases from qualified RRPPFs or the general provisions of Part I of these Rules
Cogeneration facilities must satisfy the and Regulations.
requirements set forth under Sections 2
and 4 of Article VII, Part I of these Rules and ARTICLE I
Regulations. In the case in which the rates DEFINITIONS AND QUALIFICATIONS OF A
for purchases are based upon estimates of BLOCK POWER PRODUCTION FACILITY AS A
NAPOCOR and/or the concerned electric QUALIFIED PSGF
utility’s “avoided cost” over the specific period
of a contract, the rates for such purchases do SECTION 1. Definition of Block Power
not violate this Article if these rates differ Production Facilities. – Block Power
from NAPOCOR’s or the concerned electric Production Facilities, or BPPFs, refer to
utility’s “avoided cost” at the time of delivery.
power generation facilities forming part of individual or combined long-term power
the approved power development plans of development plans which shall contain an
NAPOCOR and/or other electric utilities, efficient portfolio of generation (including
and which shall be implemented through projected power purchases from NAPOCOR
private sector participation via the Build- and qualified PSGFs) and demand-side
Own-Operate, Build-Operate-Transfer, Build- resources on or before 15 January 1996 and
Transfer-Operate, or other variants of the every year thereafter, for the DOE’s review
aforementioned private power schemes. and approval.

Renewable energy-based power generation SEC. 3. DOE Review of Power Development
facilities forming part of NAPOCOR’s and/ Plans. – The DOE, through its Energy Planning
or electric utilities’ development plans are and Monitoring Bureau (EPMB), shall review
BPPFs. the power development plans of NAPOCOR
and other electric utilities for consistency
SEC. 2. Formulation and Submission of Power with the general and specific policies for
Development Plans of NAPOCOR and/or the sector, validate the assumptions used
Other Electric Utilities. – Pursuant to Section in formulation of such plans, and check the
1 of Article I, and Sections 1 and 2 of Article consistency of such plans with national and
II, Part I, the DOE shall require NAPOCOR regional resource assessments, development
and/or individual electric utilities to submit programs, and project timetables of various
power development programs, for the DOE’s energy upstream activities.
review and approval. NAPOCOR shall submit
to the DOE an annual update of its Power The EPMB shall likewise review the list of
Development Program (PDP) on or before the power generation projects for private sector
first day of June beginning 1995 and every implementation and the indicative timetables
year thereafter. towards ensuring sufficient lead times for
undertaking information dissemination,
Such submissions should include NAPOCOR’s project organization, and preparation of
system load forecasts and generation competitive proposals. The EPMB may
requirements, resource and technology also recommend in its approval of the
assessments and evaluations, cost individual development plans of NAPOCOR
assumptions and other technical parameters, and/or electric utilities the scaling down or
and the resulting system expansion plans for integration of proposed generation projects
NAPOCOR’s major and small-island power to ensure the generation of more competitive
grids. NAPOCOR submissions should identify proposals, with due consideration of cost
power generation projects to be undertaken advantages from economies of scale.
through private sector participation, the
justifications for such, and the indicative NAPOCOR and/or other electric utilities shall
timetables for undertaking prequalification of inform and seek the DOE’s prior approval to
interested private sector entities, tendering of implement generation projects not included
bids, evaluation, and award of private power in the approved power development plans.
contracts for each of the projects identified.
ARTICLE II
Individual electric utilities seeking to PROCEDURES FOR APPLYING FOR
implement or contract the implementation ACCREDITATION AS A BLOCK POWER
of generation projects shall be required to PRODUCTION FACILITY
enter into long-term (ten-year) power supply
agreements with NAPOCOR to facilitate SECTION 1. DOE Announcement of Generation
NAPOCOR’s system planning activities. Such Projects for Private Sector Implementation.
electric utilities shall submit to the DOE their
– Upon the DOE’s approval of the power The EIAB shall then issue an order authorizing
development plans of NAPOCOR and/or the concerned electric utilities to undertake
electric utilities, the EIAB shall cause the competitive procurement for BPPF proposals.
publication of the list of projects for private Such competitive procurement activities shall
sector implementation, together with the meet the criteria set by the EIAB, or follow
target commissioning dates and indicative the procedures detailed in Section 6 of this
timetables for commencement of competitive Article.
procurement procedures.
NAPOCOR shall undertake competitive
Such announcements shall be published solicitation procedures for the remaining
in at least three (3) newspapers of general blocks of BPPF capacities within the
circulation, once a week for two (2) corresponding timeframe indicated for
consecutive weeks. each of the projects for private sector
implementation if, within such timeframes,
SEC. 2. BPPF Solicitation by NAPOCOR no other electric utility has expressed interest
and other Electric Utilities. – Following in undertaking competitive procurement for
announcement of generation projects for the remaining blocks of BPPF capacity.
private sector implementation, electric
utilities, more particularly investor-owned Solicitation schemes other than tender
distribution utilities and electric cooperatives, procedures which meet the criteria set forth
may express their interest to the EIAB to by the EIAB for competitive procurement,
undertake competitive procurement for pursuant to Section 4, Article VII, Part I shall
certain blocks of capacity included in said be allowed by the EIAB under this Part of the
announcements. Rules and Regulations.

The EIAB shall allow an electric utility In case no award is made following conduct of
or groups of electric utilities to conduct tender procedures, NAPOCOR and/or other
competitive procurement for certain blocks electric utilities shall inform and seek the
of programmed BPPF capacity, subject to the EIAB’s prior approval to either negotiate for
following conditions: the implementation of BPPF capacities or to
undertake pre-construction and construction
(a) That power to be generated by the activities themselves. Actual incremental
block of capacity to be solicited by investments, fuel, operating, maintenance
an electric utility or groups of electric and overhead costs of NAPOCOR or
utilities shall not exceed the electric the concerned electric utility shall be
utilities’ anticipated demand (including benchmarked against avoided cost figures of
the provision of reasonable reserve NAPOCOR or the concerned electric utility,
requirements); determined on the basis of the standard
methodology adopted by the EIAB.
(b) That such blocks of capacity are sufficient
in size to generate competitive proposals, SEC. 3. Participation of Corporations or
and that the remaining block of capacity Consortiums Primarily Engaged in Energy
can still be competitively bidded or Upstream Operations. – Pursuant to
contracted out; and ownership qualifications provided in Section
1, Article III, Part I, companies or consortiums
(c) For electric cooperatives, that primarily engaged in indigenous energy
the cooperative first obtain NEA’s exploration, development, and production
endorsement of the cooperative’s plan may undertake the construction and
to solicit BPPF proposals and to purchase operation of associated generation facilities
power from qualified BPPFs. to the extent that the primary fuel sources
for power generation shall come from the generation of net foreign exchange savings
local production of such companies or against programmed BPPFs, as basis for
consortiums, and subject to demonstrating issuing or denying accreditation as a qualified
the technical and financial qualifications in BPPF. Only Provisional Accreditations shall be
undertaking the scale and type of generation issued by the EIAB in such instances.
facility proposed.
A facility not in conformity with NAPOCOR’s
Government-owned and controlled development plans but which has been
corporations involved in energy upstream provisionally accredited by the EIAB as
operations shall be required to seek a qualified PSGF under these Rules and
accreditation for associated generation Regulations shall be allowed to participate in
facilities owned and operated by the same. competitive procurements being undertaken
Private corporations engaged in energy by NAPOCOR and/or any other electric
upstream operations intending to generate utilities.
electricity for sale to the grid, either directly
or in joint venture or under contract with SEC. 6. BPPF Solicitation Procedures. – The
state-owned energy upstream companies, following procedure and provisions shall
shall likewise apply for accreditation with the guide the solicitation of proposals or bids for
EIAB. BPPFs by the NAPOCOR, electric utilities, and
government-owned and controlled energy
In all cases, rates for purchase of power upstream companies, in lieu of procurement
generated from such facilities shall be schemes meeting the EIAB’s criteria for
governed by limitations provided in Section competitive requirement.
1 of Article V of this Part of the Rules and
Regulations. (1) Announcement of request for proposals
for required BPPF capacities, together
SEC. 4. Implementation of BPPFs by Electric with information on the availability of
Utilities. – Electric utilities seeking to prequalification documents, as well as
implement blocks of BPPF capacity shall be schedules, venues, and procedures for
governed by the specific provisions of Part prequalification and tendering of bids.
IV on “Electric Utility-Owned Generating
Facilities”. Publication should be made in three (3)
newspapers of general circulation, at least
SEC. 5. Facilities not in conformity with once a week for three (3) consecutive weeks,
Power Development Plans. – A facility not with the last date of publication at least
in conformity with the approved power one (1) month before the deadline for the
development plans of NAPOCOR and/or submission of pre-qualification documents.
other electric utilities may be proposed and
its feasibility be submitted to the EIAB for (1) Conduct of pre-bid conference for
consideration as a BPPF. The proponent of a pre-qualified proponents to present
facility not in conformity with the approved the project concept and timetables,
development plans should include in its government taxes and incentives
application with the EIAB the block of BPPF applicable to proponents, basic criteria
capacity that the proposed BPPF can displace for bid evaluation, the negotiable
with regard to capacity, availability, and and non-negotiable specifications
commissioning schedule. or requirements of NAPOCOR or the
concerned electric utility, bid evaluation
The EIAB shall subject such proposals to a procedures, and other information
thorough evaluation and shall compare its vital for the preparation of competitive
reliability, cost-competitiveness, and potential technical and financial proposals.
(2) Tendering of bids must be scheduled utility-solicited BPPF project upon verification
so as to allow proponents a reasonable of the BPPF’s compliance with the general
length of time for the preparation of qualifications for accreditation as a PSGF,
implementable and competitive technical and NAPOCOR’s and/or the concerned
and financial proposals. In setting the electric utility’s compliance with the criteria
date for the submission of bids, the scale for competitive procurement or with the
of the solicitation, the type of technology recommended solicitation procedure
and fuel to be employed, and the risks provided in Section 6 above. The EIAB shall
involved on the part of the Private issue the required accreditation documents
Sector Generator must be considered by within one (1) month from receipt of all
NAPOCOR and/or the concerned electric requirements.
utility.
For BPPF proposals not in conformity with
(3) To maintain the transparency of the the power development plans of NAPOCOR
whole solicitation and bidding process, and/or individual electric utilities, the EIAB
representatives of BPPF proponents shall take action to approve or deny any
must be allowed to witness the receipt, application for accreditation as a qualified
opening, tabulation, and final certification PSGF within two (2) months from receipt of
of the contents of the bids received by an application, provided that all necessary
duly-authorized officials of NAPOCOR information have been submitted to the EIAB.
and/or electric utilities. Such accreditation shall be a provisional
accreditation which shall be cancelled by
SEC. 7. EIAB Accreditation of BPPFs. – the EIAB upon conclusion of competitive
Following the conduct of competitive procurement procedures and the non-
procurement for BPPFs, NAPOCOR and/or selection of the provisionally-accredited BPPF
the concerned electric utility shall submit in the competitive procurement.
to the EIAB a complete copy of the records
pertaining to the solicitation, evaluation, ARTICLE III
selection, and award of a BPPF contract. OBLIGATIONS OF NAPOCOR, ELECTRIC
UTILITIES, AND OWNERS OF BLOCK POWER
Electric utilities which have successfully PRODUCTION FACILITIES
conducted competitive procurement
activities for BPPF facilities shall be required SECTION 1. Obligation to Purchase Electric
to enter into and submit to the EIAB a long- Energy from the Qualified BPPF. –The
term, preferably ten-year, power purchase NAPOCOR and/or the concerned electric
agreement with NAPOCOR for any existing, utility shall purchase, at rates in accordance
incremental, and/or back-up power supply with the succeeding Article hereof, electric
requirements. Should interconnection of an energy and capacity which is made available
electric utility with NAPOCOR may no longer by the owners of the qualified BPPF.
be necessary, the concerned electric utility
shall furnish NAPOCOR and the EIAB a copy of SEC. 2. Obligation to Sell to a Qualified
its board’s resolution/decision to disconnect BPPF. – NAPOCOR shall sell to the owner of
from the service of NAPOCOR. a qualified BPPF maintenance and/or back-up
power. In cases of electric utilities contracting
Upon submission of the required documents to purchase power from a qualified BPPF,
(i.e., long-term power purchase agreement NAPOCOR and the concerned electric
or board resolution) from the concerned utilities may include in their long-term power
electric utility, the EIAB shall issue the purchase agreements BPPF requirements for
required accreditation documents for the back-up and maintenance power.

SEC. 3. Obligation to Interconnect. – ARTICLE IV
NAPOCOR and/or the concerned electric RATES FOR PURCHASES AND SALES
utility shall interconnect with qualified BPPFs
to accomplish purchases or sales under SECTION 1. Purchase Rate. – The purchase
these Rules and Regulations and following rate from a BPPF shall not exceed the “avoided
stipulations in the contract between cost” of NAPOCOR and/or the concerned
NAPOCOR or the concerned electric utility electric utility, as determined thru the
and the owner of the BPPF on this matter. conduct of competitive procurement schemes
meeting EIAB’s criteria for BPPF solicitation or
Upon effectivity of an agreement for using the standard methodology adopted by
interconnection between the owner of the EIAB, pursuant to Section 4, Article VII,
a qualified BPPF and NAPOCOR or any Part I of these Rules and Regulations.
concerned electric utility, NAPOCOR or the
concerned electric utility shall issue an order SEC. 2. Rates for Sales. – NAPOCOR shall sell
allowing the physical connection of the maintenance power and/or back-up power
qualified BPPF to the transmission facilities of during unscheduled outages, as available,
NAPOCOR or to the distribution system of the to BPPFs or to electric utilities contracting
concerned electric utility. power supply with qualified BPPFs, at rates
approved by the ERB. Back-up power for
SEC. 4. Interconnection Costs. – The owner of capacity unserved by BPPFs due to their
a BPPF shall advance investments needed in unscheduled outages shall be provided by
interconnecting the BPPF with the NAPOCOR NAPOCOR’s reserve units. Penalty due to the
grid or the concerned electric utility system. inability of the BPPF to provide contracted
Repayment shall be made in accordance with power during its unscheduled outage shall be
mutually agreed upon arrangements of the stipulated in the contract between the owner
contracting parties. Maintenance costs for of the BPPF and NAPOCOR or the concerned
the interconnection facilities shall also be electric utility.
agreed upon by the NAPOCOR and the owner
of the BPPF. SEC. 3. Adjustments in Financial Accounting.
– NAPOCOR and the concerned electric
SEC. 5. Transmission to Other Electric Utilities utilities shall accordingly adjust its financial
(Wheeling). – NAPOCOR and/or any host accounting systems and procedures resulting
utility shall be obligated to transmit or wheel from purchases of electricity from a BPPF. The
the electricity generated by a qualified BPPF rate of return on rate base levels shall then be
to an electric utility or to NAPOCOR through determined after all adjustments have been
the former’s transmission and/or distribution made and set in place.
lines of 69 KV or higher. NAPOCOR and/or
any third party electric utility to which such ARTICLE V
electricity is transmitted shall purchase the OPERATING PROCEDURES AND
same under this Section. ENVIRONMENTAL CONCERNS

The rate for purchases by the third party SECTION 1. Security of BPPF. – For national
electric utility to which such electricity is emergency situations, NAPOCOR, with the
transmitted shall be accordingly adjusted assistance of the military, shall provide on-
to reflect line losses and the corresponding site coordination of BPPF operations to
wheeling charges. prevent brownouts and ensure the continuity
of electric service.


SEC. 2. Environmental Concerns. – The BPPF Rules and Regulations.
shall consider the environmental impact/
effect of its operations. The owner of the SEC. 3. Facility Classification. – Facility
BPPF shall ascertain that environmental classifications allowed under Section 3,
management standards as required by law Article III, Part I shall apply to PSGFs seeking
through appropriate governmental agencies accreditation under this Part of the Rules and
are met in the construction, operation and Regulations.
maintenance of the BPPF.
SEC. 4. Size of Generating Units. – The
PART IV limitation on maximum size of generating
SPECIFIC PROVISIONS ON ELECTRIC UTILITY- units as stipulated in Section 4 of Article II,
OWNED GENERATING FACILITIES Part I of these Rules and Regulations shall
be encouraged in order to facilitate possible
The following Articles shall further guide NAPOCOR service to these generating plants
electric utilities seeking to engage in self- during forced outages or maintenance
generation for direct sale to their customers periods.
and/or utility plant maintenance.
ARTICLE II
ARTICLE I PROCEDURES FOR APPLYING FOR
QUALIFICATIONS AS A PRIVATE SECTOR ACCREDITATION AS A PRIVATE SECTOR
GENERATION FACILITY GENERATION FACILITY

SECTION 1. Ownership. – Electric utilities SECTION 1. Contents of Application. – In
shall be allowed to construct, operate and addition to the requirements of Section 1,
maintain existing or new generating facilities Article IV, Part I, an electric utility seeking
for their self-generation subject to financial accreditation for a facility which qualifies
limitations provided in Section 4 below. under the preceding Article shall submit
Majority interest by an electric utility on to the EIAB a copy of its long-term power
the equity of a PSGF shall be considered as purchase agreement with NAPOCOR for any
ownership by an electric utility, and shall incremental, maintenance, or back-up power
thus be subject to electric utility regulations requirements. Adjustments in the long-
concerning rates, financial limitations, taxes term power purchase agreement between
and other laws applicable to their operations NAPOCOR and the concerned electric
as electric utilities. utility shall be considered to the extent
that NAPOCOR may still adjust its Power
SEC. 4. Financial Limitations on Electric Development Program.
Utilities. – An electric utility shall be allowed
to own and operate new generation facilities In cases where an electric utility has opted or
meeting the qualifications set forth in this is opting to no longer connect with NAPOCOR
Article, provided that the electric utility’s ratio for any incremental or back-up power supply,
of long-term debt to equity is maintained at the electric utility shall present to NAPOCOR
or below 1.5. and the EIAB a copy of the relevant Board
Resolution/s stating such decisions, and
The above financial limitations on electric releasing NAPOCOR from any obligation
utilities shall be waived by the EIAB for to supply the electric utility’s power
purposes of accrediting existing generation requirements.
facilities of electric utilities and for already
accredited PSGFs for the internal use of SEC. 2. Accreditation. – An electric utility’s
electric utilities as of the effectivity of these generating facilely which meets the criteria

for accreditation set forth in the preceding Should a qualified electric utility-owned PSGF,
Article, and the conditions of Section 1 of this however, require the transmission of any
Article is a qualified PSGF. amount of power generated to the owner-
electric utility, NAPOCOR and/or the host
Pursuant to the provisions of Section 4, utility shall be obligated to interconnect such
Article IV, Part I, the EIAB may issue a qualified facilities and provide the required
provisional accreditation to a PSGF which wheeling services, pursuant to the provisions
meets the criteria for accreditation set of Section 2, Article VI, Part 1.
forth in the preceding Article, to give the
concerned electric utility a reasonable period ARTICLE III
of time to either finalize a long-term power NAPOCOR’S RELATIONSHIP WITH ELECTRIC
purchase agreement with NAPOCOR, or issue UTILITIES OWNING FACILITIES FOR SELF
a Board Resolution releasing NAPOCOR from GENERATION
any further obligation to serve the power
requirements of the concerned electric utility. SECTION 1. Provision on Reserve Capacity. –
NAPOCOR shall maintain a reserve capacity
SEC. 3. Period of Processing. – Provided in the NAPOCOR grid system considering all
all requirements shall have been complied generating facilities existing and operating
with, the EIAB shall take action to approve therein. A reasonable annual reserve
or deny any application for accreditation capacity carrying fee, as determined by
within two (2) months from the date of NAPOCOR and approved by the ERB, shall
the application, unless the EIAB shall have be paid by all generating electric utilities
required the submission of’ additional requiring maintenance and/or back-up power
information, or postponement of final action from NAPOCOR. Such payment shall make
on an application or for other reasonable NAPOCOR obligated to provide maintenance
grounds. Any order postponing final action and back-up power requirements of affected
on an application shall state specifically the electric utilities on an “as-available” basis.
grounds for postponement, and the date on
which a final ruling shall be issued. SEC. 2. Provision of Incremental PSG Power.
– NAPOCOR shall supply incremental PSG
SEC. 4. Non-transferability of Accreditation. power to the electric utility owning facilities
– Accreditations issued by the EIAB to electric for self-generation to the extent provided in
utilities owning and operating qualified PSGFs a long-term contract for this purpose. The
shall not be transferable or assignable except selling rate of NAPOCOR for incremental PSG
to an electric utility subsidiary determined to power shall be at rates approved by the ERB.
be technically and financially-qualified by the
EIAB. For purposes of this Section, an electric SEC. 3. Provision for System Emergencies.
utility subsidiary shall mean any company – NAPOCOR and electric utilities with
wherein the concerned electric utility holds a self-generation may mutually agree on
majority equity interest. the provision of power during system
emergencies in their respective systems to
SEC. 5. Assumption on Interconnection. – It the extent possible and under terms to be
shall be assumed that electric utilities owning agreed upon by both parties.
generating units for their self-generation are
already interconnected with the NAPOCOR SEC. 4. Dispatchability. – Electric utilities with
grid. Any possible interchange of electricity self-generation shall conform with policies
to and from NAPOCOR shall be coursed pertaining to the Dispatch Management
through said interconnection facilities. System (DMS) of NAPOCOR.


SEC. 5. Production Cost Higher than generation shall regularly submit to the
NAPOCOR’s. – At a time when production DOE, thru the EIAB, operating and other
cost from the generating units solely for information as may be required by the DOE
internal use of an electric utility is higher for monitoring and planning purposes.
than buying from NAPOCOR, and the electric
utility decides to get power from NAPOCOR SEC. 9. Formulation of Power Development
to replace its own generation, NAPOCOR Plans. – Electric utilities owning and
shall sell to said electric utility provided that: operating facilities for self-generation shall
NAPOCOR’s unit production cost would remain submit to the DOE, for review and approval,
the same with the added load; NAPOCOR’s their individual or combined long-term power
system operations would not be hampered; development plans which shall contain an
NAPOCOR’s service to other customers would efficient portfolio of generation (including
not be unduly affected; and NAPOCOR would projected power purchases from NAPOCOR
not be pressured to add new capacities to and other qualified PSGFs) and demand-side
meet the new load. NAPOCOR shall not be resources on or before 15 January 1996 and
obligated to purchase the generating facilities every year thereafter.
of the electric utility as such action may be
detrimental to the interest of NAPOCOR’s PART V
regular customers. OTHER PROVISIONS

SEC. 6. Excess Production of PSGF. – In SECTION 1. Implementation of the Rules
instances when the generating units of the and Regulations. – The EIAB shall take all
electric utilities are capable of producing necessary and reasonable measures to
electricity in excess of their requirement, ensure that the provisions of these Rules and
NAPOCOR shall not be obligated to purchase Regulations are made effective.
such excess power. In instances when
NAPOCOR may opt to purchase power from SEC. 2. DOE Revision of the Rules and
said electric utility, purchase rate shall not Regulations. – The DOE shall prescribe
exceed the “avoided cost” of NAPOCOR at the and, from time to time thereafter, revise
time of delivery. such Rules as it determines necessary to
encourage private sector participation in
SEC. 7. Change of Status. – An electric utility power production. Such Rules shall be
with an accredited facility for self-generation prescribed after consultation with the private
may decide to sell excess production on a sector and appropriate government agencies.
regular basis to NAPOCOR or to another
electric utility. Terms and conditions of SEC. 3. Publication. – These Rules and
purchase by NAPOCOR shall be consistent Regulations shall take effect fifteen (15)
with the applicable provisions given in Parts days after the date of publication in one (1)
I and III of these Rules and Regulations and newspaper of general circulation.
shall be stipulated in a Contract.
FRANCISCO L. VIRAY
SEC. 8. Periodic Reporting to the EIAB. – Acting Secretary
The electric utility owning facility for self- Fort Bonifacio, Metro Manila, 2 January 1995


AMENDING CERTAIN PROVISIONS OF ENERGY REGULATIONS NO. 1-95, ENTITLED “RULES AND
REGULATIONS IMPLEMENTING EXECUTIVE ORDER NO. 215 ON PRIVATE SECTOR GENERATION IN
POWER GENERATION”
WHEREAS, the Department of Energy (the utility operating within the NAPOCOR
“Department”) as part of its mandate under grids or other electric systems such
the Department of Energy Act of 1992, is as an electric cooperative, local-
embarking upon a major restructuring of the government-owned and privately-
Philippine electric power industry; owned electric utility, including any
light and power utility operating
WHEREAS, the Department is collaborating within special zones established
with Congress in formulating an “Omnibus or registered by the Philippine
Electric Power Industry Act”, which will ordain Economic Zone Authority.
reforms in restructuring the electric power
industry and in promoting wider participation “(o) ‘Renewable Energy Sources’
of the private sector in the generation, means the following sources of
transmission and distribution subsectors; energy that are regenerative or
virtually inexhaustible, namely,
WHEREAS, there is an increasing private biomass, solar, wind, micro-hydro
sector involvement in power generation in (below 100 kilowatts) and mini-
the light of: i) continuing plans by non-utilities hydro (101 to 10,000 kilowatts), and
on generation primarily for their internal use; also means by-product materials
and ii) the establishment of special economic that, but for their use as a source of
zones or “ecozones” which have the franchise energy, would be considered waste.”
to operate heat, light and power utilities by
virtue of Republic Act No. 7916 creating the SEC. 2. Part I, Article III, Section 6 is hereby
Philippine Economic Zone Authority; amended to read as follows:

WHEREAS, it would now be timely and “SEC. 6. Economic Criteria. – Any
imperative for the Department to monitor the proposed electric generating facility
entry of new generating capacity and thereby should submit to the EIAB at least a
revise and prescribe certain provisions of ten-year power supply agreement
Energy Regulations (E.R.) No. 1-95, consistent for capacity and energy between
with the above-cited developments; NAPOCOR and the electric utility
that will be served by the facility to
NOW, THEREFORE, the Department hereby enable the EIAB to determine that
adopts and promulgates the following said facility satisfies incremental
amendments to certain provisions of E.R. No. load/demand, and should be able
1-95: to demonstrate its potential for
providing net foreign exchange
SECTION 1. Part I, Article I, Sections 3 (n) savings for the country, by virtue of:
and 3 (1.1) n Definition of Terms are hereby
amended to read as follows: “(a) generating electric energy more
efficiently or cheaper than
“(n) ‘Electric utility’ refers to the can otherwise be generated

by existing or programmed – A non-utility PSGF shall apply for
generation facilities under the accreditation and shall submit to
power development plans of the EIAB plans to construct and
NAPOCOR and/or other electric operate electric generating facility
utilities; and/or for the owner’s internal use subject
to compliance with the economic
“(b) using indigenous and/or criteria provided for in Section 6,
renewable energy sources; and/ Article III, Part I of these Rules and
or Regulations. In order to enable EIAB
to determine that said facility satisfies
“(c) accessing lower costs of capital, incremental load/demand, the non-
cheaper plant investment, utility PSGF shall submit at least a
and/or locally-manufactured ten-year power supply agreement
equipment.” for capacity and energy with the
franchised electric utility where the
SEC. 3. Part I, Article IV, Section 9 is hereby generating plant is located. Such
amended to read as follows: plans shall be reviewed by the EIAB
and integrated into the formulation
“SEC. 9 EIAB Monitoring of of the national power development
accredited PSGFs. – Owners/ plan.”
proponents of accredited PSGFs
shall submit monthly status reports SEC. 5. Part II, Article I, Section 2 is hereby
on the progress of each accredited amended to read as follows:
project to the EIAB, and shall
immediately inform the EIAB of any SEC. 2. Definition of Renewable
substantial changes in the project Resource Power Production Facilities
that may have an impact on the (RRPPFs). – RRPPFs, as defined in
PSGF’s qualified status. The PSGF these Rules and Regulations, refers
shall likewise advise the EIAB on the to any facility which produces
attainment of project milestones (e. electricity by the use of renewable
g., site groundbreaking, issuance of energy sources as its primary energy
environmental clearances and other source. Renewable energy sources
permits, financial closing, etc.) for means the following sources of
monitoring purposes. energy that are regenerative or
virtually inexhaustible, namely,
“The EIAB shall render monthly biomass, micro-hydro (below 100
reports to the DOE Secretary on kilowatts) and mini-hydro (101
the progress of accredited projects. kilowatts to 10,000 kilowatts), and
Copies of these reports shall be also means by-product material
regularly furnished to concerned that, but for their use as a source of
bureaus and agencies of the DOE for energy, would be considered waste.
information and coordination.” Geothermal, small-hydro (10,000
kilowatts to 50,000 kilowatts) and
SEC. 4. Part I, Article IV, Section 14 is hereby large-hydro (over 50,000 kilowatts)
amended to read as follows: facilities should be considered
Block Power Production Facilities as
“SEC. 14. Generation by Non- provided for under Part III of these
Utilities Primarily for Internal Use. Rules and Regulations.


“Primary energy source, on the other require NAPOCOR and/or individual
hand, means the fuel/s used for the electric utilities to submit power
generation of electricity, except that development programs covering a
such terms do not include: ten-year period, for the DOE’s review
and approval. NAPOCOR shall
“(a) The minimum amounts of fuel submit to the DOE an annual update
required for ignition, start up, of its Power Development Program
testing, flame stabilization and (PDP) on or before the first day of
control uses; and June beginning 1997 and every year
thereafter.
“(b) The minimum amounts of fuel
required to alleviate or prevent: “Such submissions should include
NAPOCOR’s system load forecasts and
“ (i) unanticipated equipment generation requirements, resource
outages; and and technology assessments and
evaluations, cost assumptions and
(ii) emergencies directly affecting other technical parameters, and the
the public health, safety or resulting system expansion plans
welfare, which would result for NAPOCOR’s major and small-
from electric power outages.” island power grids. NAPOCOR’s
submissions should identify power
SEC. 6. Part II, Article II, Section 1 is hereby generation projects to be undertaken
amended to read as follows: through private sector participation,
the justifications for such, and the
“SECTION 1. Accreditation of indicative timetable for undertaking
RRPPFs and Cogeneration Facilities. prequalification of interested power
– An RRPPF meeting the general sector entities, tendering of bids,
qualifications under Article III of Part evaluation, and award of private
I of these Rules and Regulations, power contracts for each of the
without requiring the submission projects identified.
of any long-term power supply
agreement, is a qualified PSGF. A “Individual electric utilities seeking
cogeneration facility is a qualified to implement or contract the
PSGF under these Rules and implementation of generation
Regulations if it meets the general projects shall be required to enter
qualifications under Article III of Part into long-term power supply
I, and the thermal efficiency standard agreements for capacity and energy
for cogeneration projects, as defined of at least ten years with NAPOCOR’s
in Section 2 of this Article.” system planning activities. Such
electric utilities shall submit to the
SEC. 7. Part III, Article I, Section 2 is hereby DOE their individual or combined
amended to read as follows: long-term power development
plans, which shall contain an efficient
“SEC. 2. Formulation and Submission portfolio or generation (including
of Power Development Plans of projected power purchases from
NAPOCOR and/or Other Electric NAPOCOR and qualified PSGFs) and
Utilities. – Pursuant to Section 1 demand-side resources on or before
of Article I and Sections 1 and 2 30 April 1997 and every year after,
of Article II, Part I, the DOE shall for the DOE’s review and approval.

“Accordingly, no application for “The EIAB shall likewise review the
accreditation of any proposed list of power generation projects for
electric generating facility for an private sector implementation and
electric utility shall be entertained the indicative timetables towards
by the DOE without the concerned ensuring sufficient lead times for
electric utility’s long-term power undertaking dissemination, project
supply agreement with NAPOCOR organization, and preparation of
and its DOE-approved power competitive proposals. The EIAB
development plan. may also recommend in its approval
of the individual development
“NAPOCOR and/or other electric plans of NAPOCOR and/or electric
utilities shall inform and seek the utilities scaling down or integration
DOE’s prior approval to implement of proposed generation projects
generation projects not included in to ensure the generation of more
the approved development plans.” competitive proposals, with due
consideration of cost advantages
SEC. 8. Part III, Article I, Section 3 is hereby from economies of scale.
“The EIAB shall recommend the
“SEC. 3. DOE Review of Power DOE’s approval and adoption of
Development Plans. – The DOE’s power development plans and
Energy Industry Administration their integration with the Philippine
Bureau (EIAB), as part of its mandate Energy Plan not later than 30 June
to review, evaluate, and accredit 1997 and every year thereafter.
private sector proposals, shall review
the power development plans of “NAPOCOR and/or other electric
NAPOCOR and other electric utilities. utilities shall inform and seek the
DOE’s prior approval to implement
“The EIAB, in consultation with the generation projects not included in
Energy Planning and Monitoring the approved power development
Bureau, shall formulate the plans.”
parameters for the planning horizon
and disseminate the same not later SEC. 9. Part IV, Article III, Section 9 is hereby
than 31 March 1997 and every year amended to read as follows:
thereafter.
“SEC. 9. Formulation of Power
“The review of power development Development Plan. – Electric utilities
plans shall take into account owning and operating facilities for
consistency with the general and self-generation shall submit to the
specific policies for the energy DOE, for review and approval, their
sector, validate the assumptions individual or combined long-term
used in formulation of such plans, power development plans, which
and check the consistency of such shall contain an efficient portfolio
plans with national and regional of generation (including projected
resource assessments, development power purchases from NAPOCOR and
programs, and project timetables of other qualified PSGFs) and demand-
various energy upstream activities. side resources on or before 30 April
1997 and every year thereafter.”


SEC. 10. DEPARTMENT CIRCULAR NO.96- publication in at least two (2) newspapers of
08-010 dated 26 August 1996, suspending general circulation.
accreditation of certain power generation
proposals, is hereby repealed. Fort Bonifacio, Taguig, Metro Manila, 21
January 1997.
SEC. 11. This Circular shall take effect
immediately a day after its complete FRANCISCO L. VIRAY
Secretary

FURTHER AMENDING ENERGY REGULATIONS NO. 1-95 DATED JANUARY 2, 1995 ENTITLED
“RULES AND REGULATIONS IMPLEMENTING EXECUTIVE ORDER NO. 215 ON PRIVATE SECTOR
PARTICIPATION IN POWER GENERATION” AS AMENDED BY DEPARTMENT CIRCULAR NO.97-01-001
DATED JANUARY 21, 1997

WHEREAS, Executive Order No. 215 issued DEPARTMENT CIRCULAR NO.97-01-001 is

on July 10, 1987 allows the participation of hereby amended to read as follows:
private sector in power generation;
“SECTION 1. Contents of the
WHEREAS, the Department of Energy (the Application. – The contents of
DOE) encourages the participation of the applications for accreditation as a
private sector in the power generation qualified Private Sector Generation
business consistent with the said Executive Facility (PSGF) should generally
Order; contain the following information:

WHEREAS, the DOE recognizes the unique “(a) Name and address of the
contribution to be made by Renewable applicant and location of the
Resource Power Production Facilities (RRPPF) proposed facility;
also known as the New and Renewable Energy
Facilities (NREF) in the country’s generation “(b) Project organizational set-up;
mix and in meeting rural electrification
targets; “(c) Names of cooperative/
participating companies, equity
WHEREAS, there is an imperative need to participation, incorporation
facilitate and enhance the participation of documents, audited financial
RRPPF/NREF in power generation in view of statements for the last two fiscal
the country’s growing electricity requirement; years, and records of successful
experience in similar activities over
NOW, THEREFORE, the DOE hereby adopts the last five (5) years;
and promulgates the following amendments
to Energy Regulations No. 1-95 as amended “(d) Project financing plans;
by DEPARTMENT CIRCULAR NO.97-01-001:
“(e) Administrative and technical
SECTION 1. Part I, Article IV, Section I of manpower complements;
Energy Regulations No. 1-95 as amended by
“(f) Facility classification and general “(1) the technology being proposed
plant description; has already achieved commercial
status and can be demonstrated to
“(g) Sale of PSGF generation (whether be adaptable to local conditions; or
generation is solely for sale to the
grid, dedicated to an electric utility, “(2) the project is being developed
or for internal use with provision for for purposes of self-generation, and
sale of excess power to the grid); the developer demonstrates the
capability to provide or the financial
“(h) Projected mode of operation capacity to retain the competent
(base load or peaking); technical and financial capabilities
necessary to implement to proposed
“(i) Power and annual energy project; or
production capacity (in kW and kWh,
respectively) of the proposed facility; “(3) if the project is being developed
by a utility or independent
“(j) Primary energy source (fuel) of power producer, the developer
the facility, heating value and net demonstrates the capability to
plant rate; provide or the financial capacity to
retain the competent technical and
“(k) Projected forced outage rate, financial capabilities necessary to
maintenance days, dependable implement the proposed project.”
capacity and station energy use;
SEC. 2. Part I, Article VI, Section 3 of the
“(l) Projected economic life of same Energy Regulations as amended by
project and proposed duration of DEPARTMENT CIRCULAR NO.97-01-001 is
interconnection /cooperation period; hereby amended to read as follows:

“(m) Interconnection plans with “SEC. 3. Provision on Spinning
NAPOCOR or other electric utility; Reserve. – The owner of the PSGF
shall maintain a continuous spinning
“(n) Detailed project timetable, reserve at all times to the extent
including target periods for financial possible and under terms to be
closing, groundbreaking, installation agreed upon with NAPOCOR or the
of major plant equipment, testing concerned electric utility. However,
and commissioning of the facility; this provision on spinning reserve
shall not apply to RRPPF/NREF
(o) Any other information as may projects if:
be required under the specific
provisions of Parts II, III, IV or as may “(1) the project is not connected to
be deemed necessary by the EIAB for either the national backbone grid, or
evaluation purposes. regional or island mini-grids; or

“However, records of successful “(2) the project is connected to
experience in similar activities over a regional or island mini-grid
the last five (5) years as requisite in powered by conventional generation
Item c. above shall not be required reasonably capable of load following,
for RRPPF/NREF projects provided e.g., peaking or intermediate diesel
that: generation plants.

“Further, if the RRPPF/NREF project providing net foreign exchange
is proposed for connection to the savings to the country, by virtue of:
national backbone grid, the provision
on spinning reserve shall be subject “(a) generating electric energy more
to negotiation with the transmission efficiently or cheaper than can
system operator or from any future otherwise be generated by existing
regulatory body overseeing the or programmed generation facilities
operations of the transmission grid under the power development plans
system.” of NAPOCOR and/or other electric
utilities; and /or
SEC. 3. Part II, Article II, Section 3 of the
same Energy Regulations as amended by “(b) accessing lower costs of capital,
DEPARTMENT CIRCULAR NO.97-01-001 is cheaper plant investment, and/or
hereby amended to read as follows: locally manufactured equipment.”

“SEC. 3. Cogeneration Facilities “However, proposed RRPPF shall
Utilizing Renewable Energy Sources. not be required to submit the above
– Cogeneration facilities utilizing power supply agreement to EIAB but
renewable energy forms as its should be able to demonstrate its
primary energy source or utilizing potential for providing net foreign
renewable energy sources and exchange savings to the country, by
fossil fuels, either through a blend, virtue of using indigenous and/or
combination, or alternating use renewable energy sources.”
of such fuels, shall be classified as
Renewable Resource Cogeneration SEC. 5. Part III, Article I, Section 2 of the
Facilities for of accreditation as same Energy Regulations as amended by
qualified PSGFs. Renewable Resource DEPARTMENT CIRCULAR NO.97-01-001 is
Cogeneration Facilities shall not be hereby further amended to read as follows:
subject to the minimum thermal
efficiency standards required for “SEC. 2. Formulation and Submission
cogeneration facilities under Section of Power Development Plans of
2 of this Article.” NAPOCOR and/or Other Electric
Utilities. – Pursuant to Section 1
SEC. 4. Part I, Article III, Section 6 of the of Article I and Sections 1 and 2
same Energy Regulations as amended by of Article II, Part I, the DOE shall
DEPARTMENT CIRCULAR NO.97-01-001 is require NAPOCOR and/or individual
hereby further amended to read as follows: electric utilities to submit power
development programs covering a
“SEC. 6. Economic Criteria. – Any ten-year period, for the DOE’s review
proposed electric generating facility and approval.
should submit to EIAB at least a
ten-year power supply agreement “NAPOCOR shall submit to the
for capacity and energy between DOE an annual update of its Power
NAPOCOR and/or the electric utility Development Program (PDP) on or
that will be served by the facility to before the first day of June 1997 and
enable to EIAB to determine that every year thereafter.
said facility satisfies incremental
load/demand, and should be able “Such submissions should include
to demonstrate its potential for NAPOCOR’s system load forecasts and

generation requirements, resource or exclusive use by an identified
and technology assessments and customer shall not be required to
evaluations, cost assumptions and submit to the DOE its long-term
other technical parameters, and the power supply agreement with
resulting system expansion plans for NAPOCOR and its DOE-approved
NAPOCOR’s major and small-island power development plan.
power grids. NAPOCOR submissions
should identify power generation “Accordingly, with the exception of
projects to be undertaken through RRPPF/NREF projects mentioned
private sector participation, the above, no application for
justification for such, and the accreditation of any proposed
indicative timetables for undertaking electric generating facility for an
prequalification of interested private electric utility shall be entertained
sector entities, tendering of bids, by the DOE without the concerned
evaluation, and award of private utility’s long-term power supply
power contracts for each of the agreement with NAPOCOR and its
projects identified. DOE-approved power development
plan.
“Individual electric utilities seeking
to implement or contract the “NAPOCOR and/or other electric
implementation of generation utilities shall inform and seek the
projects shall be required to enter DOE’s prior approval to implement
long-term power supply agreements generation projects not included in
for capacity and energy of at least the approved development plans.”
ten years with NAPOCOR to facilitate
NAPOCOR’s systems planning SEC. 6. This Circular shall take effect
activities. immediately a day after its complete
publication in at least two (2) newspapers of
“Such electric utilities shall submit to general circulation.
the DOE their individual or combined
long-term power development plans Fort Bonifacio, Taguig, Metro Manila, 17
which shall contain an efficient March 2000.
portfolio or generation (including
projected power purchases from Witnessed by:
NAPOCOR and qualified PSGFs)
and demand-side resources on or MARIO V. TIAOQUI
before 30 April 1997 and every year Secretary
thereafter, for the DOE’s review and
approval.
OLEGARIO S. SERAFICA
“However, RRPPF/NREF projects President, Renewable Energy Association of
intending to provide electricity to the Philippines, Inc.
an electric utility or for internal use

WHOLESALE ELECTRICITY SPOT MARKET RULES
WHEREAS, Republic Act No. 9136, otherwise the draft was updated to conform with the
known as the “Electric Power Industry provisions thereof and posted in November
Reform Act of 2001” (Act), which became 2001.
effective on the 26th of June 2001 provides
the framework for the restructuring of the WHEREAS, numerous public consultations
electric power industry to bring about a since November 2001 have been held
free and fair competition on the pricing of to discuss and solicit comments, views,
electricity; suggestions on the proposed WESM Rules,
viz.:
WHEREAS, the Act mandates the
establishment of a wholesale electricity • Series of public consultative workshops
spot market (WESM) where the trading of from November to December of 2001;
electricity can be made;
• National Consolidation Workshop to
WHEREAS, the Act enjoined and authorized facilitate resolution of differing views,
the Department of Energy (DOE) to establish comments and suggestions held in
the WESM, and formulate the detailed Baguio City on February 19, 2002;
rules thereof within one (1) year from the
effectivity thereof: Provided That, the price • Sectoral Consolidation Workshops with
determination methodology shall be subject different industry participants of the
to the approval of the Energy Regulatory sectors of the electricity industry held at
Commission; the DOE from June 10 to 11 of 2002;

WHEREAS, in accordance and in compliance • Finalization Workshops to finalize the
with the Act, the DOE undertook a series of WESM Rules held at the DOE from June
public consultations to jointly formulate the 13 to 26 of 2002.
WESM Rules with electric power industry
participants; NOW THEREFORE, pursuant to its mandate
under the Act, the DOE hereby issues, adopts
WHEREAS, the development of the WESM and promulgates the attached WESM Rules,
Rules had commenced since March 2000 and which shall be effective on the fifteenth
the very first draft was posted in the DOE (15th) day following its publication in at least
website for information of and dissemination two (2) national papers of general circulation.
to the public in March 2001;
VINCENT S. PÉREZ, JR.
WHEREAS, after the effectivity of the Act Secretary
and its Implementing Rules and Regulations

WHOLESALE ELECTRICITY
SPOT MARKET RULES
CHAPTER 1 1.2.1.5 The WESM Rules shall

INTRODUCTION be interpreted in
accordance with the
1.1 SCOPE OF CHAPTER 1 provisions of chapter 9,
objectives of the Act and
(a) Purpose of the WESM Rules; other provisions of law.
(b) Parties bound by the WESM Rules;
1.2.2 Purpose of the WESM Rules
(c) Responsibilities of the Market
Operator; The WESM Rules are promulgated to
(d) Responsibilities of the System implement the provisions of the Act, its
Operator; Implementing Rules and Regulations and
other related laws as well as to:
(e) Composition and functions of the
PEM Board;
(a) Promote competition;
(f) Responsibilities of the PEM Auditor;
(g) Responsibilities of the Market (b) Provide an efficient, competitive,
Surveillance Committee; transparent and reliable spot market;
(h) Responsibilities of the Technical
(c) Ensure efficient operation of the WESM
Committee; and
by the Market Operator in coordination
(i) Public consultation procedures. with the System Operator in a way which:
1.2 PURPOSE AND APPLICATION OF RULES 1. Minimizes adverse impacts on

system security;
1.2.1 About the Philippines Wholesale
Electricity Spot Market Rules 2. Encourages market participation;
and
1.2.1.1 This document shall be
known as the Wholesale 3. Enables access to the spot market.
Electricity Spot Market
Rules (“WESM Rules”). (d) Provide a cost-effective framework for
resolution of disputes among WESM
1.2.1.2 Formulated jointly with Participants, and between WESM
electric power industry Participants and the Market Operator;
participants;
(e) Provide for adequate sanctions in cases
1.2.1.3 Promulgated by the DOE; of breaches of the WESM Rules;
1.2.1.4 In the WESM Rules, (f) Provide efficient, transparent and fair
words and phrases that processes for amending the WESM
appear in italics are Rules;
defined in the glossary in
chapter 11.
(g) Provide for the terms and conditions to inconsistencies between
which entities may be authorized to the WESM Rules, the Grid
participate in the WESM; Code and the Distribution
Code, may be referred to
(h) Provide the authority and governance the ERC for resolution only.
framework of the PEM Board; and
1.2.4 Scope of Application
(i) Encourage the use of environment-
friendly renewable sources of energy in Pursuant to Section 30 of the
accordance with the Act. Act, all WESM Participants shall
comply with the WESM Rules and
1.2.3 The Regulatory Framework applicable laws or regulations of
the Philippines.
1.2.3.1 The Act mandates the
Department of Energy 1.2.5 WESM Objectives
(DOE) to promulgate the
detailed rules for the The objectives of the spot market
WESM, which it shall are to establish a competitive,
formulate jointly with the efficient, transparent and reliable
Electric Power Industry market for electricity where:
Participants.
(a) A level playing field exists
1.2.3.2 To ensure a greater supply among WESM Participants;
and rational pricing of
electricity, the Act provides (b)
Trading of electricity is
the Energy Regulatory facilitated among WESM
Commission (ERC) the Participants within the spot
authority to enforce the market;
rules and regulations
governing the operations (c) Third parties are granted
of the electricity spot access to the power system in
market and the activities of accordance with the Act;
the spot Market Operator
and other participants in (d) Prices are governed as far as
the spot market. practicable by commercial and
market forces; and
1.2.3.3 The WESM Rules form
part of the regulatory (e) Efficiency is encouraged.
framework which is
applicable to the owners, 1.3
MARKET OPERATOR AND SYSTEM
operators and users of the OPERATOR
power system under the
Act. 1.3.1 Responsibilities of the Market
Operator
1.2.3.4 On matters pertaining to
financial and technical 1.3.1.1 The Market Operator
standards set for shall, generally and non-
Generation Companies, restrictively, have the
TRANSCO, Distribution following functions and
Utilities, and Suppliers, responsibilities:
(a) Administer the trading intervals; and
operation of the
WESM in accordance (c) Identify any apparent
with the WESM rules; or suspected incidents
of anticompetitive
(b) Allocate resources to behavior by any
enable it to operate WESM Member.
and administer the
WESM on a non-profit 1.3.1.3 The Market Operator
basis; shall, in consultation
with WESM Participants,
(c) Determine the
develop guidelines as
dispatch schedule
to what constitutes a
of all facilities in
significant variation.
accordance with the
WESM Rules. Such
1.3.1.4 If the Market Operator
schedule shall be
identifies any significant
submitted to the
variations, the Market
System Operator.
Operator shall, prepare
(d) Monitor daily trading and publish a report
activities in the explaining the identified
market. significant variations
within ten business days
(e) Oversee transaction from the cognizance
billing and settlement thereof.
procedures; and
1.3.1.5 The Market Operator shall
(f) Maintain and publish
provide a printed copy
a register of all
of the completed report
WESM Participants
referred to in clause
and update and
1.3.1.4 to:
publish the register
whenever a person
(a) The DOE and the ERC;
or entity becomes or
ceases to be a WESM
(b) The PEM Board; and
Participant.
(c) WESM Members and
1.3.1.2
In performing clause interested entities on
1.3.1.1 (d), the Market request.
Operator shall:
1.3.1.6 Where the WESM Rules
(a) Determine whether require the Market
or not such trading Operator to develop
is performed in procedures, processes
accordance with the or systems, the Market
WESM Rules; Operator shall do so after
taking into consideration
(b) Identify any the likely costs to WESM
significant variations Participants of complying
in and between with those procedures
or processes and of 1.3.1.8 The Market Operator shall
obtaining, installing or ensure that the dispatch
adopting those systems, schedules comply with
as the case may be and any constraints notified
consistent with the by the System Operator
purpose set forth in clause in accordance with clause
1.2.2, the Market Operator 6.6.1.
may recommend changes
to these procedures in 1.3.2 Market Operator Performance
accordance with the Rule
Change process set out in 1.3.2.1 In exercising its discretions
Chapter 8. and performing its
obligations under the
1.3.1.7 The Market Operator WESM Rules, the Market
shall: Operator shall:
(a) Comply with each of (a) Act in accordance

the requirements and with any standard
obligations imposed of performance
on it under the WESM provided for by any
Rules, Grid Code, and statute, regulation
other applicable laws or authorization
or regulations; condition to which
the Market Operator
(b) Implement the is subject;
transitory provision
specified in Chapter (b) Act in a reasonable
10; and prudent manner;
(c) Perform those actions (c) Act in good faith;

that are required
to be taken prior (d) Take into
to the spot market consideration, act
commencement consistently with and
date, as specified in use its reasonable
the WESM Rules and endeavors to
clause 10.4 hereof; contribute towards
and the achievement of
the WESM objectives;
(d) Develop appropriate and
cost recovery
processes to cover (e) Ensure an audit trail
its liabilities in the of documentation
event of damage or that is fully adequate
injury, which may to substantiate
be caused by its acts and reconstruct all
or omissions in the relevant actions
faithful performance performed.
of its functions.

1.3.2.2 Clause 1.3.2.1 does not assist with any aspect of the
prevent the Market operation of the spot market,
Operator from performing in coordination with the
any obligation under the Market Operator.
WESM Rules.
(d)
Implement the transitory
1.3.2.3 Every year, the Market provisions specified in Chapter
Operator shall prepare 10; and
and publish performance
indicators which monitors (e) Perform those actions that
and provides an indication are required to be taken
of, the Market Operator’s prior to the spot market
performance under the commencement date as
WESM Rules with respect specified in the WESM Rules
to: and clause 10.4.
(a) The Market Operator’s 1.4 GOVERNANCE OF THE MARKET

responsibilities under
the WESM Rules; and The WESM governance is the process
by which decisions are made and
(b) The achievement of implemented within the market to ensure
the WESM objectives attainment of the WESM objectives
as defined in clause under clause 1.2.5.
1.2.5.
1.4.1 Philippine Electricity Market (PEM)
1.3.3 Responsibilities of the System Board
Operator.
1.4.1.1 The WESM shall be
Under these Rules, the System governed, and its powers
Operator shall have the following and functions exercised by
functions and responsibilities: the PEM Board.
(a)
Be responsible for and 1.4.1.2 In addition to the powers
operate the power system in of a corporation under
accordance with the WESM the Corporation Code
Rules, the Grid Code and any and those stated herein,
instruction issued by the the PEM Board shall have
Market Operator or the ERC. all powers necessary,
convenient and incidental
(b) Provide central dispatch to to the performance
all generation facilities and of its functions and
loads connected, directly or responsibilities in
indirectly, to the transmission accordance with the
system in accordance with the WESM Rules.
dispatch schedule submitted
by the Market Operator. 1.4.1.3 In performing its functions,
the PEM Board shall act in
(c)
Contribute towards the a reasonable, ethical and
development of procedures, prudent manner, which
processes or systems, or to
facilitates an efficient, avoided;
competitive, transparent
and reliable spot market (c) There should
and is consistent with the be sufficient
WESM objectives. independent directors
appointed to the PEM
1.4.1.4 The PEM Board may Board to balance the
delegate any of its number of directors
functions, obligations and representing the
powers to a committee Philippines electric
or other entity in power industry; and
circumstances when
it is reasonable, at its (d) Be set out in detail
judgment, to do so. in clause 1.4.2.4 so
as to reflect and be
1.4.1.5 The PEM Board shall consistent with the
conduct its business criteria stated herein.
activity in accordance
with its Articles and By- 1.4.2.2 If at any time the structure
laws and other applicable or size of the Philippine
laws, rules or regulations. electric power industry
or any sector within
1.4.2 Composition of the PEM Board it changes so that the
detailed composition of
1.4.2.1 Composition of the the PEM Board as set
PEM Board shall be in out in clause 1.4.2.4 is
accordance with the no longer reflective of or
following criteria: consistent with clause
1.4.2.1, clause 1.4.2.4
(a)
Each sectors of shall be amended in
the electric power accordance with the Rules
industry shall be change process in chapter
represented in the 8 and consequential
PEM Board; changes to the PEM Board
shall be made as soon as
(b)
The number of practicable so that the
representatives of PEM Board reflects and
each sector of the is consistent with the
Philippine electric principles set out in clause
power industry 1.4.2.1.
should be such that
no one sector of the 1.4.2.3 For the purposes of
industry can dominate this clause 1.4.2 the
proceedings or electric power industry is
decision-making by comprised of the following
the PEM Board; and sectors, viz.:
be selected in such a
way that deadlocks (a) Distribution;
in decision-making (b) Generation;
processes should be (c) Transmission;
(d)
Supply, sale and but not limited to
purchase by entities Suppliers;
other than those
which undertake (e) Four (4) Directors who
activities in the are representatives
distribution, of and nominated
generation and by Generation
transmission sectors. Companies registered
under clause 2.3.1;
1.4.2.4 The PEM Board shall
consist of: (f) Four (4) Directors who
are:
(a) One (1) Director
representing the (1) Independent of
Market Operator; the Philippines
electric power
(b) One (1) Director industry and the
representing the Government;
National Transmission (2) Not eligible to
Company (TRANSCO); be appointed as
a representative
(c) Four (4) Directors under clauses
who are nominated 1.4.2.3 (a), (b),
by WESM Members (c), or (d); and
registered under (3) Nominated by
clause 2.3.4 as WESM Members;
Distribution Utilities,
provided that: (g) A Chairperson
who is one of the
(1) Two (2) of those four independent
Directors are Directors of the PEM
representatives Board and who is
of and nominated elected by a majority
by Electric of all members of
Cooperatives; the PEM Board. The
and first Chairperson
(2) Two (2) of those of the PEM Board,
Directors are however, shall be
representatives the DOE Secretary in
of and nominated accordance with the
by Distribution Implementing Rules
Utilities which and Regulations of
are not Electric the Act.
Cooperatives;
All of the above
(d) One (1) Director who representatives shall
is representative of formally be appointed in
and nominated by accordance with clause
Customers, including 1.4.3.

1.4.2.5 A Director of the PEM manager, director
Board may only serve or shareholder of a
on the PEM Board at company, affiliate
any point in time as a or any other entity
representative of one related to or
category of representative associated with a
under clause 1.4.2.4. WESM Member,
where:
1.4.2.6 A company, firm or
business, which is (1) A related
represented on the PEM company or
Board in one category body, is a parent
under clause 1.4.2.4, or holding
may not be represented company of the
by an individual in any WESM Member,
other category under a subsidiary or
clause 1.4.2.4, regardless affiliate of the
of whether the company, WESM Member
firm or business has or a subsidiary
interests in more than one of a holding
sector of the Philippines company of the
electricity industry. WESM Member;
and
1.4.2.7 For the purposes of (2) An associate is a
this clause 1.4.2, a person who is a
person is deemed to director, manager
be independent of the or shareholder
Philippine electric power of that related
industry if that person: company or
entity or a relative
(a) Is not an employee, of such a person;
contractor, agent,
manager, director (d)
Has not been
or shareholder of a employed by any
WESM Member; electric power
industry participant,
(b) Is not a relative of a or a company or
person, within the body related to or
fourth civil degree associated with a
of consanguinity WESM Participant
or affinity, of (as defined in clause
an employee, 1.4.2.7 (c)) within
contractor, agent, two years prior to the
manager, director nomination date; and
or shareholder of a
WESM Member; (e) Agrees not to be
employed by and
(c) Is not an employee, does not accept
contractor, agent, employment with

any electric power provisions of the
industry participant, Corporation Code shall
or a company or apply, provided that:
body related to or
associated with a (a) A majority of the
WESM Member (as total number of
defined in clause Directors, each
1.4.2.7 (c)) within having one vote, shall
one year after the constitute a quorum
person ceases to be a for the transaction of
Director. business of the PEM
Board.
1.4.3 Appointment to the PEM Board
(b) Every decision of at
1.4.3.1 The directors of the PEM least a majority of
Board shall be appointed votes of Directors
by the DOE in accordance present in meeting
with the required shall be valid as a
composition of the PEM PEM Board act. If
Board as set out in clause voting is equal, the
1.4.2, having regard to the Chairperson has a
expertise necessary for casting vote;
the PEM Board to carry
out its functions and any (c) Directors cannot
relevant provisions of the attend or vote by
Corporation Codes of the proxy at board
Philippines in relation meetings.
to the appointment of
directors. 1.4.4.2 A Director or the sector
or company that he
1.4.3.2 With effect from the date represents, who:
on which the Independent
Market Operator assumes (a) Has a direct or indirect
the duties, functions material pecuniary
and responsibilities interest in a matter
of the AGMO, all new being considered,
appointments or re- or is about to be
appointments of Directors considered by the
and the Chairperson of PEM Board; and
the PEM Board are to be
made in accordance with (b)
The interest may,
the required composition or may reasonably,
of the PEM Board as set be considered to be
out in clause 1.4.2. in conflict with the
proper performance
1.4.4 Voting Rights of the Director’s
duties in relation to
1.4.4.1 Unless, expressly stated the consideration of
otherwise herein, the matter,

shall, as soon as practicable (b) Act in a manner that
after the relevant facts is consistent with the
become known, or ought WESM Rules;
reasonably to have been
known, shall disclose the (c) Perform all things
nature of the interest at reasonably necessary
a meeting of the PEM to contribute toward
Board. the achievement of
the WESM and the
1.4.4.3 A disclosure under clause Act’s objectives;
1.4.4.2 shall be recorded
in the minutes of the (d) Duly consider and
meeting and, unless the take into account
PEM Board otherwise the provisions of the
determines, the Director: WESM Rules, when
deciding whether or
(a)
Shall not be not to approve any
present during any matter for which the
deliberation of the PEM Board’s approval
PEM Board in relation or agreement is
to that matter; and required under the
WESM Rules;
(b) Shall not take part in
any decision of the
(e) Promptly notify the
PEM Board in relation
ERC of all relevant
to that matter.
information relating to
potential breach with
1.4.4.4 Notwithstanding clause
a recommendation
1.4.4.2, a Director
on action to be taken;
appointed to the PEM
and
Board as a representative
of a sector of the
(f) Perform all other
Philippine electric power
things that the PEM
industry is permitted to
Board considers
take into consideration
reasonably necessary
matters relevant to that
to promote the
sector of the industry
WESM objectives
when considering and
and improve the
deciding on matters
operation of the
before the PEM Board.
WESM as well as the
WESM Rules.
1.4.5 Obligations of the PEM Board
1.4.5.2 The following are the
1.4.5.1 The PEM Board shall at all
powers and duties of the
times:
PEM Board:
(a) Fulfill its obligations
(a) Oversee and monitor
under the WESM
the activities of the
Rules;
Market Operator

and the System spot market and of the Market
Operator to ensure Operator in accordance with
that they fulfill their clause 1.5;
responsibilities under
the WESM Rules, and (b) A Market Surveillance
acting in a manner Committee to monitor and
consistent with the report on activities in the spot
WESM Rules; market in accordance with
clause 1.6;
(b) Form Committees
in accordance with (c) A Technical Committee to
clause 1.4.6; monitor and review technical
matters under and in relation
(c) Oversee and monitor to the WESM Rules, the Grid
the activities of the Code and Distribution Code in
working groups accordance with clause 1.7;
established under and
clause 1.4.6 to ensure
that they fulfill their (d) A Rules Change Committee to
responsibilities under assist the DOE in relation to the
and in accordance revision and amendment of
with the WESM Rules; the WESM Rules in accordance
with chapter 8.
(d) Oversee and monitor
the activities of WESM (e) A Dispute Resolution
Members to ascertain Administrator to facilitate
and determine the mediation of the dispute
compliance or non- between the parties to reach
compliance with the resolution within a specified
WESM Rules; and period of time in accordance
with the dispute resolution
(e) Oversee the process process under chapter 7.
by which changes to
the WESM Rules are 1.5 THE PHILIPPINES ELECTRICITY MARKET
proposed and made AUDITOR
in accordance with
clause 8.2 and other 1.5.1 Responsibilities of the Auditor
clauses contained
herein. The PEM Auditor shall:
1.4.6 Formation of Committees (a) Conduct annual audits of the

Market Operator and the
The PEM Board shall form working settlement system and any
groups and appoint qualified other procedures, persons,
personnel who shall act as the systems or other matters
following: relevant to the spot market;
(a) The PEM Auditor to conduct (b) Test and check any new
audits of the operation of the items or versions of software

provided by the Market clause 1.6.2.
Operator for use by WESM
Members; 1.6.1.2 The members of the
Market Surveillance
(c) Review any procedures and Committee shall be
practices which are covered independent of the
by the WESM Rules at the Philippine electric
direction of the PEM Board; power industry and the
Government.
(d) Recommend changes to the
WESM Rules where the PEM 1.6.2 Responsibilities of the Market
Auditor detects deficiencies Surveillance Committee.
as a consequence of an audit,
review, test, check or other The Market Surveillance
form of review; and Committee shall from time to time
as necessary and appropriate, and
(e) Publish on the market whenever the PEM Board directs:
information website the
results of any findings and (a) Monitor activities conducted
recommendations under this by WESM Participants in the
clause 1.5.1. spot market;
1.5.2 Review of WESM Rules (b)

Prepare periodic reports,
which outline:
The PEM Auditor may appoint a
qualified team of auditors to carry (1) Activities of WESM
out a review of the scheduling and Participants in the spot
central dispatch processes under market;
the WESM Rules.
(2) Apparent or suspected
1.6 MARKET SURVEILLANCE COMMITTEE incidents of anti-
competitive behavior by
1.6.1
Appointment to the Market any WESM Participant;
Surveillance Committee and
1.6.1.1 The PEM Board shall (3) Matters concerning the

appoint persons to form operation of the spot
a Market Surveillance market generally, which
Committee in such number reports shall be submitted
and with such skills and to the PEM Board, the DOE
expertise, and on such and ERC upon completion;
terms and conditions, as
the PEM Board reasonably (c) Assist the PEM Board to verify
deems to be appropriate, and assess:
taking into consideration
the nature of the (1) Applications for
obligations and functions registration of WESM
of the Market Surveillance Members under the
Committee, as set out in WESM Rules; and

(2) The eligibility of WESM Committee, taking into
Members to be registered consideration the nature of the
under the WESM Rules; obligations and functions of the
Technical Committee, as set out in
(d) Assist the PEM Board to clause 1.7.2.
investigate:
(1) Unusual or suspicious 1.7.2 Responsibilities of the Technical
behavior or activities of Committee.
WESM Members in the
spot market; In addition to its obligations and
functions under the Grid Code
(2)
Suspected or alleged and Distribution Code (if any), the
breaches of the WESM Technical Committee shall from
Rules by WESM Members; time to time as necessary and
and appropriate, and whenever the
PEM Board directs:
(3) Suspected or alleged anti-
competitive behavior; (a) Monitor technical matters
relating to the operation of
(e) From time to time if the Market the spot market;
Surveillance Committee in its
discretion deems necessary (b) Provide a report to the PEM
or appropriate, propose Board on any matter of a
amendments to the WESM technical nature relating to
Rules in accordance with any WESM Member which in
chapter 8 with a view to: the reasonable opinion of the
Technical Committee, causes:
(1) Improving the efficiency
and the effectiveness (1) That WESM Participant to
of the operation of the be unable to comply with
WESM; and the WESM Rules; or
(2) Unintended or
(2) Improving or enhancing distortionary effects to the
the prospects for the operation of the WESM;
achievement of the WESM
objectives; (c) Assist the PEM Board by
providing expertise in relation
(f) Assist the Rules Change to:
Committee in relation to its
assessment of proposals to (1) Information technology;
amend the WESM Rules under (2) Metering technology and
chapter 8. metering data; and
(3) Any other matter of a
1.7 TECHNICAL COMMITTEE technical nature relating
to the spot market;
1.7.1 Appointment to the Technical
Committee. (d) From time to time if the
Technical Committee in its
The PEM Board shall appoint discretion deems necessary
persons to form a Technical or appropriate, propose
amendments to the WESM submissions concerning the matter
Rules in relation to technical to be made by a specified date;
matters, in accordance with
chapter 8 with a view to: (b) Where, in the reasonable opinion of
the PEM Board, there is a diversity
(1) Improving the efficiency of views expressed in the written
and the effectiveness of submissions received under clause
the operation of the spot 1.9(a), the PEM Board shall invite
market; and WESM Participants and other
interested persons to a meeting or
(2) Improving or enhancing meetings at which those views may
the prospects for the be presented and discussed. Non-
achievement of the WESM members, who may be deemed
objectives; and interested persons may be invited
to attend subject to the discretion of
(e) Assist the Rules Change the PEM Board;
Committee in relation to its
assessment of proposals of a (c) Following its consideration of the
technical nature to amend the matter under consultation, the PEM
WESM Rules under chapter 8. Board shall prepare a report setting
out:
1.8 ENFORCEABILITY AND AMENDMENT OF
THESE RULES (1) The matter under consultation;
(2) The PEM Board’s decision in
1.8.1 Enforceability relation to the matter;
(3) The reasons for the PEM Board’s
These Rules are enforceable in decision;
accordance with chapter 7. (4) The findings on material
questions of fact, referring to
1.8.2 Changes to the WESM Rules evidence or other material
on which those findings were
Amendments to the WESM Rules based; and
shall be made in accordance with (5) The procedures followed in
chapter 8. considering the matter.
1.9 PUBLIC CONSULTATION PROCEDURES (d) The PEM Board shall provide a copy
of the report referred to in clause 1.9
Where the WESM Rules identify (c) to:
matters that are subject to review or
consultation in accordance with the (1) The DOE and the ERC on
public consultation procedures, the PEM completion of the report; and
Board shall ensure that, as a minimum,
the following procedures are followed: (2) WESM Participants and
interested persons on request.
(a) The PEM Board shall publish in at
least two (2) newspapers of national CHAPTER 2
circulation particulars of the matter REGISTRATION
to WESM Participants and other
interested persons, inviting written 2.1 SCOPE OF CHAPTER 2

This chapter 2 sets out: under clauses 2.3.1,
2.3.2 or 2.4 as either a
(a) The categories of WESM Members; Direct WESM Member
or an Indirect WESM
(b) The procedure for registration Member; and
as a WESM Member, including
registration as an Intending WESM (b) Are bound by the
Member; WESM Rules upon
registration with the
(c) The procedure for ceasing to be a Market Operator.
WESM Member;
2.2.2.2 Network Service Providers
(d) The procedure for suspension of registered by the Market
a WESM Member and liability of Operator under clause
Deregistered WESM Members; and 2.3.4 are bound by the
WESM Rules.
(e) The procedure for recovery of
the Market Operator’s costs and 2.2.2.3 Ancillary Services
expenses. Providers:
2.2 GENERAL (a) Shall register with

the Market Operator
2.2.1 Scope of Application under clauses 2.3.5 or
2.4 as either a Direct
Other than the Market Operator, WESM Member or
the WESM Rules apply to: an Indirect WESM
Member; and
(a) System Operator;
(b) Generation Companies; (b) Are bound by the
(c) Ancillary Services Provider; WESM Rules upon
(d) Distribution Utilities; registration with the
(e) Suppliers; Market Operator.
(f) Metering Services Providers;
(g) Bulk consumers/End-users; 2.2.2.4 Metering Services
and Providers registered by the
(h) Other similar entities Market Operator under
authorized by the ERC to clause 2.3.6 are bound by
become members of the the WESM Rules.
WESM.
2.2.2.5 A System Operator
All of which are WESM Participants. registered by the Market
Operator under clause
2.2.2 Registration 2.3.7 is bound by the
WESM Rules. Other
2.2.2.1 Trading Participants: similar entities shall
secure authorization from
(a) Shall register with ERC to become eligible as
the Market Operator members of the WESM.

2.2.3 Registration in Multiple Categories (a) Classify each of the
generating units
If a person or an entity undertakes which form part of
activities in two or more of the the generating system
categories listed in clause 2.2.1, it owns, operates
that person or entity shall register or controls or from
in each of those categories in which it otherwise
accordance with the procedures in sources electricity as
clause 2.5. either:
2.2.4 WESM Members (1) A scheduled

generating unit;
2.2.4.1 A WESM Member is person or
or an entity registered
with the Market Operator (2) A non-scheduled
in any one or more of the generating unit;
above categories, whether or
registered as a Direct
WESM Member or an (3) A new and
Indirect WESM Member, if renewable
applicable. energy (NRE)
generating unit
2.2.4.2 No person or entity shall with intermittent
be allowed to inject or energy resource;
withdraw electricity from
the grid unless that entity (b) Satisfy the Market
or person is a registered Operator that those
member of the WESM. generating units and
2.2.4.3. the connection points
for those generating
2.2.4.3 An Intending Participant units comply with
is not considered to be a the relevant technical
WESM Member. requirements set out
in the WESM Rules,
2.3 CATEGORIES OF WESM MEMBER the Grid Code and
Distribution Code;
2.3.1 Generation Company and
2.3.1.1 A Generation Company (c) Satisfy the

with facilities connected membership criteria
to a transmission or specified in clause
distribution system shall 2.3.3.4.
register with the Market
Operator as a WESM 2.3.1.3 A generating unit or a
Member. group of generating units
connected at a common
2.3.1.2 To register as a WESM connection point with
Member, a Generation a nameplate rating or
Company shall: a combined nameplate

rating of greater than or Generation Company
one tenth of one percent only so far as its activities
(> 0.1%) of the peak load relate to any scheduled
in a particular reserve generating unit.
region shall be classified
as a scheduled generating 2.3.1.7 A Scheduled Generation
unit. Company is required to
operate any scheduled
2.3.1.4 A generating unit or a generating unit in
group of generating units accordance with the
connected at a common scheduling and dispatch
connection point with procedures described
a nameplate rating and in chapter 3, within
a combined nameplate the dispatch tolerances
rating of less than one specified in accordance
tenth of one percent (< with clause 2.3.3.5.
0.1%) of the peak load in a
particular reserve region, 2.3.2 Customer
or less than ten percent
(< 10%) of the size of 2.3.2.1 A person or an entity that
interconnection facilities, engages in the activity
whichever is lower, shall of purchasing electricity
be classified as a non- supplied through the
scheduled generating unit, transmission system or
but may at its option be a distribution system to
classified as a scheduled a connection point may
generating unit. register with the Market
Operator as a Customer.
2.3.1.5 A generating unit or
group of generating 2.3.2.2 To register as a Customer,
units connected at a a person or an entity shall
common connection point satisfy the membership
whose energy resource criteria specified in clause
is location specific and 2.3.3.4.
has a natural variability
which renders the output 2.3.2.3 A Customer shall comply
unpredictable and the with the scheduling and
availability of the resource dispatch procedures
inherently uncontrollable described in chapter 3.
shall be classified as an
NRE generating unit 2.3.3 Trading Participant
with intermittent energy
resource, but may at its 2.3.3.1 A Trading Participant
option be classified as is a person or an entity
a scheduled generating registered with the Market
unit. Operator as either:
2.3.1.6 A Generation Company is (a) A Customer; or

taken to be a Scheduled

(b) A Generation (as defined in
Company, the [Philippines
Companies Act/
and may be registered Code]) or under
either as a Direct WESM a similar form of
Member or an Indirect administration under
WESM Member in respect any laws applicable to
of its activities relating to that person or entity
trading in the spot market in any jurisdiction;
subject to compliance with
the relevant prerequisites (c) Is not immune from
set out in clauses 2.3 and suit in respect of the
2.4. obligations of a WESM
Member under the
2.3.3.2 Subject to clauses 2.3.3.3 WESM Rules;
and 2.3.3.4, a Trading
Participant registered as (d) Is capable of being
a Direct WESM Member sued in its own name
is permitted to participate in a court of the
in the spot market for Philippines; and
each category in which
that Trading Participant is (e) Satisfies the prudential
registered. requirements.
2.3.3.3 A person or an entity shall 2.3.3.5 Prior to registration of

not undertake activities or a Trading Participant in
participate in or in relation respect of a scheduled
to the spot market unless generation unit or
the person or entity is a scheduled load facility, an
Direct WESM Member Intending WESM Member
registered as a Customer may seek a ruling from
or Generation Company the System Operator with
with the Market Operator. respect to the dispatch
tolerances to be applied.
2.3.3.4 Membership Criteria
2.3.3.6 If no prior ruling is sought
A person or an entity is not under clause 2.3.3.5, the
eligible to be registered System Operator shall
as a Trading Participant make a ruling with respect
unless that person or to dispatch tolerances
entity: upon registration of that
Trading Participant.
(a) Is a resident in,
or is permanently 2.3.3.7 The System Operator may,
established in, the at any time, review any
Philippines; ruling made under clause
2.3.3.5 or 2.3.3.6 in the
(b) Is not under external light of further information
administration or experience.

2.3.3.8 A Scheduled Generation (a) Shall register with the
Company may appeal to Market Operator as
the PEM Board in respect an Ancillary Services
of a ruling provided under Provider in respect of:
this section that is relevant
to that person or entity. (1) Each reserve
facility it
2.3.3.9 If at any time a Trading operates;
Participant ceases to be
eligible to be registered (2) Each reserve
as a Trading Participant category it
in accordance with clause intends to
2.3.3.4, that Trading provide from the
Participant shall inform reserve facilities
the Market Operator registered under
accordingly and, as soon clause 2.3.5.1
as practicable after the (a)(1) and as
Market Operator becomes authorized by
aware that a Trading the System
Participant is no longer Operator under
eligible to be registered, clause 2.3.5.3;
the Market Operator shall and
issue a suspension notice
in respect of that Trading (3) The reserve
Participant in accordance facility category
with clause 3.15.7. applicable to the
reserves intended
2.3.4 Network Service Provider to be provided
by each of the
2.3.4.1 The TRANSCO or the Grid reserve facilities
Owner as defined in the registered under
Grid Code shall register clause 2.3.5.1
with the Market Operator (a)(1) and as
as a Network Service authorized by the
Provider. System Operator
under clause
2.3.4.2 A Distribution Utility shall 2.3.5.3.
register with the Market
Operator as a Network (b) May be registered
Service Provider. either as a Direct
WESM Member or
2.3.5 Ancillary Services Provider an Indirect WESM
Member in respect
2.3.5.1 A Trading Participant or of its activities
Network Service Provider relating to the
providing ancillaryservices provision of ancillary
in accordance with clause services, subject to
3.3: satisfying the relevant
prerequisites set out
in clause 2.3.
2.3.5.2 Only an Ancillary Services (d) Provide written
Provider registered as a authorization to the
Direct WESM Member Market Operator
may enter into an ancillary which sets out the
services agreement with relevant information
the System Operator determined under
under clause 3.3.3. clauses 2.3.5.3 (a), (b)
and (c).
2.3.5.3 Prior to the registration of
a Trading Participant or a 2.3.5.4 A Trading Participant
Network Services Provider and a Network Services
as an Ancillary Services Provider shall not be
Provider eligible to provide paid or compensated
reserves in accordance for providing ancillary
with clause 2.3.5.1, the services or reserves
System Operator shall: unless:
(a) Certify that the (a)

Registered as an
relevant reserve Ancillary Services
facility is capable of Provider in respect of
providing the reserve the relevant facility
category for which in accordance with
registration is sought, clause 2.3.5.1; or
in accordance with
the Grid Code and (b)
Registered as an
Distribution Code; Ancillary Services
Provider for provision
(b) Classify each reserve of the relevant
facility for which reserve category in
registration is sought that relevant reserve
into a reserve facility region in accordance
category in respect of with clause 2.3.5.1.
each reserve category
that is intended to 2.3.6 Metering Services Provider
be provided by that
reserve facility; 2.3.6.1 A person or an entity
intending to provide
(c) Determine to which metering services
reserve region each in accordance with
reserve facility for chapter 4 shall secure an
which registration is authorization from the
sought may belong, ERC.
depending on the
ability of that reserve 2.3.6.2 A person or an entity
facility to apply authorized by the ERC
reserve to meet to provide metering
the corresponding services shall register
locationally specific with the Market Operator
reserve requirement; as a Metering Services
and Provider.
2.3.6.3 Initially, the TRANSCO (b) Satisfy the relevant
shall provide the services requirements of clause 2.3, for
required of the Metering Direct WESM Members.
Services Provider, but this
will not exclude other 2.5.3 Further information to assess
entities from doing the application
same, provided they
meet the requirements of 2.5.3.1 Within five business days
chapter 4. of receiving an application,
the Market Operator shall
2.3.7 System Operator advise the applicant of any
further information which
The System Operator of the the Market Operator
TRANSCO shall register with the reasonably considers to
Market Operator as a System be required to enable
Operator. the Market Operator
to properly assess the
2.4 INDIRECT WESM MEMBERS application.
A person or an entity who wishes to 2.5.3.2 If the Market Operator has

indirectly trade in the spot market shall not received any further
register with the Market Operator as information as required
an Indirect WESM Member. However, under clause 2.5.3.1
an Indirect WESM Member may only within the next fifteen
transact through a direct WESM Member. business days, the Market
Operator may treat the
2.5 APPLICATIONS FOR REGISTRATION application as withdrawn.
2.5.1 Application process 2.5.3.3 If the Market Operator

incurs additional costs
An application for registration as a result of requesting
shall be submitted to the Market and assessing any further
Operator in the form prescribed by information required
the Market Operator and shall be under clause 2.5.3.1, the
accompanied by a registration fee Market Operator may
published by the Market Operator. require the applicant to
pay the actual amount
2.5.2 Prerequisites for applicants incurred to cover those
additional costs.
If an applicant applies for
registration either as a Direct 2.5.4 Approval of applications
WESM Member or as an Indirect
WESM Member that applicant If an application for registration
shall: has been received by the Market
Operator and:
(a) Have an appropriate and
current authorization required (a) All relevant prerequisites have
under the Act; and been satisfied;

(b) The applicant is eligible to 2.5.6.1 If the Market Operator
be registered in the category does not approve an
or categories in which application for registration
registration is sought; and in a category to which an
application relates, the
(c) The Market Operator Market Operator shall
reasonably considers that the send within fifteen (15)
applicant will be able to comply business days written
and maintain compliance with notice to the applicant
the WESM Rules, advising the applicant
that the application is not
then subject to clause 2.5.5, the approved and the Market
Market Operator shall approve Operator shall give
the application and register the reasons for its decision.
applicant in that category or
categories. 2.5.6.2 The ERC shall be provided
a copy of such written
2.5.5 Notice of approval of application notice within five (5)
business days after
2.5.5.1 If the Market Operator issuance to the applicant.
approves an application
under clause 2.5.4, the 2.5.6.3 If an application for
Market Operator shall registration is rejected
send written notice of by the Market Operator
approval to the applicant under clause 2.5.6.1 an
within fifteen business applicant may:
days from receipt of:
(a) Rectify the
(a) The application under shortcomings in his
clause 2.5.1; or previous application
as notified by the
(b) The additional Market Operator as
information or fees, being the reasons for
if further information the application being
or fees are required unsuccessful and re-
under clause 2.5.3. submit an application
for registration; or
2.5.5.2 The registration of the
applicant shall take effect (b) Refer the matter
on the date specified in the for resolution as a
notice of approval which dispute under clause
shall be a date not more 7.3.
than seven days after the
date on which the Market 2.5.7 Market Operator to maintain a list
Operator sends the notice
of approval under clause The Market Operator shall publish
2.5.5.1. and keep current a list of registered
WESM Members, the categories
2.5.6 Notice of non-approval of in which they are registered and
application details of the current status of
applications to become a WESM If the Market Operator provides
Member in accordance with clause notice under clause 2.6.3 that a
5.2.3. WESM Member shall cease to be
registered in the relevant category
2.6 CEASING TO BE A WESM MEMBER on a specified date, that WESM
Member shall cease all activities
2.6.1 Notifying the Market Operator relevant to that category that it
was permitted to undertake before
If a person or an entity wishes to it ceased to be registered as a
cease to be registered: WESM Member in that relevant
category, including but not limited
(a) In any one or more categories to trading in the spot market if
of WESM Member set out in that WESM Member ceases to be
clause 2.3; or registered as a Trading Participant,
from that date.
(b) As an Indirect WESM Member,
2.7 SUSPENSION
it shall notify the Market Operator
in writing. 2.7.1 Grounds for Suspension
2.6.2 Date of cessation The Market Operator may issue

a suspension notice to WESM
In a notice given under clause 2.6.1, Participants based on the following
a WESM Member shall specify: grounds:
(a) A date upon which it wishes to (a) Breach of the WESM Rules
cease to be registered, which subject to clause 7.2.2; and
date should not be less than
thirty (30) business days after (b) Payment default subject to
the date on which the WESM 3.14.11.
Member sends the notice; and
2.7.2 Effect of a suspension notice
(b) The category or categories in
which the WESM Members no If a Trading Participant who is
longer wishes to be registered. either a Direct WESM Member
or an Indirect WESM Member
2.6.3 Notifying all WESM Members receives a suspension notice from
the Market Operator in accordance
On receipt of a notice under clause with any provision of the WESM
2.6.1, the Market Operator shall Rules, that Trading Participant is
notify all WESM Members that suspended from participation in
the person or entity who gave the the spot market unless and until
notice shall cease to be registered the Market Operator declares the
as a WESM Member in the relevant suspension notice to be revoked in
category and the date on which accordance with clause 3.15.7.
that will occur.
2.8 DEREGISTRATION
2.6.4 Market Operator notification of
cessation 2.8.1 Deregistration of a Trading
Participant
2.8.1.1 If the Market Operator 2.9.1 Registration as an Intending WESM
issues a deregistration Member
notice to any Trading
Participant under the Any person or entity who intends
deregistration process, to register as a WESM Member
the Trading Participant is may register with the Market
deemed to be deregistered Operator as an Intending WESM
as a Trading Participant Member if that person or entity
from the date specified in can satisfy the Market Operator of
the deregistration notice. its bona fide intent to commence
an activity, within a reasonable
2.8.1.2 A Trading Participant timeframe, which would entitle
who is deregistered or require that person or entity to
shall not be allowed to be registered as a WESM Member
reregister within a certain once that activity is commenced.
prescriptive period and
until it has demonstrated 2.9.2 Applications for registration
that such infraction will
not occur again. Applications for registration as
an Intending WESM Member
2.8.2 Obligations and liabilities following shall be submitted to the Market
deregistration. Operator in the form prescribed by
the Market Operator and shall be
Notwithstanding that a person or accompanied by the registration
an entity is no longer registered as fee (if any) published by the Market
a WESM Member for any reason Operator from time to time.
including ceasing to be a WESM
Member or being suspended from 2.9.3 Notice of cessation of registration
the spot market, that person’s
or entity’s obligations and The Market Operator may from
liabilities which arose under the time to time require an Intending
WESM Rules prior to the date on WESM Member to satisfy the
which that person or entity was Market Operator that it continues
deregistered remain unaffected by to meet the criteria for registration
the deregistration. in clause 2.9.1 and if the Intending
WESM Member is unable to
2.8.3 Deregistration procedure satisfy the Market Operator that it
development remains entitled to be registered
as an Intending WESM Member,
Prior to spot market then the Market Operator shall
commencement date, the Market send written notice to the relevant
Operator shall develop procedures Intending WESM Member to advise
for deregistration including the relevant Intending WESM
grounds for deregistration and Member that it will cease to be
prescriptive period referred to in registered as an Intending WESM
clause 2.8.1.2 to be approved by Member on the date specified by
the PEM Board. the Market Operator in that notice.
2.9 INTENDING WESM MEMBERS 2.9.4 Activities of Intending WESM

Members
An Intending WESM Member is 2.10.2.1
Prior to the
taken to be an Intending WESM commencement of the
Member only insofar as its spot market, the Market
activities relate to its intention to Operator shall develop
commence an activity that would the structure and
entitle or require that person or level of market fees in
entity to be registered as a WESM consultation with WESM
Member. Participants.
2.9.5 Rights and obligations of Intending 2.10.2.2 In developing the structure

WESM Members and level of market fees,
To the extent relevant and take into consideration
applicable, an Intending WESM the manner in which
Member acquires only the it intends to charge
following rights and obligations each category of WESM
under the WESM Rules: Member, and whether
that charging proposal
(a) The right to obtain information is reasonable given the
that would be made accessible relative involvement of
to WESM Members in each category of WESM
the category in which the Member in the spot
Intending WESM Member market.
intends to be registered;
2.10.2.3 Upon the approval of the
(b) The right to refer matters for PEM Board, the Market
resolution according to the Operator shall file the
dispute resolution process in proposed structure and
clause 7.3; and level of market fees with
the ERC for approval.
(c) The obligation to keep certain
information confidential in 2.10.3 Guiding Principles
accordance with clause 5.3.
The structure of market fees
2.10 MARKET FEES should, to the extent practicable,
be consistent with the following
2.10.1 Imposing Market Fees principles:
The cost of administering and (a) The structure of market fees

operating the WESM shall be should be transparent;
recovered by the Market Operator
through a charge imposed on (b) Market fees shall consider
all WESM Members or WESM the budgeted revenue
transactions, provided such requirements for the Market
charge shall be filed by the Market Operator and the PEM Board
Operator with the ERC for approval, determined under clause 2.11;
consistent with the Act. and
2.10.2 Structure and Level of Market Fees (c) The structure and level of
market fees should not favor
or discriminate against a determining the structure prior
category or categories of to commencement of the spot
WESM Member. market.
2.10.4 Components of Market Fees 2.11 BUDGET
The components of the market 2.11.1 Submission of annual statements

fees shall include, but are not and other documents
limited to:
2.11.1.1 No later than four months
(a) Registration fees, comprising prior to the start of each
an annual fee payable by financial year, the Market
each WESM Member for the Operator shall submit
category or categories in an annual statement of
which they are registered; expected income and
expenses to the PEM
(b) Metering fees to recover the Board for approval, setting
Market Operator’s budgeted out, among others, the
revenue requirements for following:
the collection, storage and
processing of metering data; (a) B u d g e t e d
expenditures and
(c) Billing and settlement fees, revenues for the next
to recover the Market financial year for the
Operator’s budgeted revenue Market Operator and
requirements for providing the the PEM Board;
billing and settlements service,
as described in chapter 3; (b) Amount of market
fees proposed to be
(d) Administration fees, to recover charged for the next
the remainder of the Market financial year; and
Operator’s budgeted revenue
requirements not covered by (c)
Method used in
(a), (b), (c) and (d); and determining the
amount of proposed
(e) Costs reasonably incurred market fees in respect
by the PEM Board and the of each of the Market
committees and working Operator’s activities
groups that the PEM Board and the PEM Board’s
appoints under the WESM activities referred
Rules. to in clause 2.10.4
including but not
2.10.5Publication of Market Fees limited to the Market
Structure Operator’s estimated
costs and expenses
Upon the approval of ERC, the associated with those
Market Operator shall publish activities.
the structure and level of market
fees and the methods used in

2.11.1.2 The Market Operator shall Board.
submit to the ERC a copy
of the annual statement 2.12.2 Providing copy of report
approved by the PEM
Board under clause The Market Operator shall provide
2.11.1.1. a copy of the annual report
prepared under clause 2.12.1 to:
2.12 FINANCIAL YEAR REPORT
(a) The ERC and the DOE on
2.12.1 Market Operator to prepare report completion of the report;
(b) The PEM Board; and
2.12.1.1 No later than four months (c) WESM Members and
after the end of each interested entities on request.
financial year, the Market
Operator shall prepare CHAPTER 3
an annual report, setting THE MARKET
out, among others, the
following: 3.1 SCOPE OF CHAPTER 3
(a) The budgeted and This chapter 3 sets out the rules which
actual expenditures govern operation of the spot market, and
and revenues of the related matters, including but not limited
Market Operator and to:
the PEM Board, clearly
categorizing each (a) The definition of the market network
group of expenses model, pricing zones, reserve
and revenues into categories and reserve regions,
the key functions and trading interval and timetable;
activities undertaken
by the Market (b) The procedures to be followed by
Operator and the WESM Members in submitting offers,
PEM Board; and demand bids and data into the spot
market;
(b) An explanation
of any significant (c) The structure and use of the market
variation between dispatch optimization model;
budgeted and actual
expenditures and (d) The procedures for provision of
revenues, ancillary services and for determining
payment for those services;
in respect of the previous
financial year. (e) The procedures for preparing week
ahead projections and day ahead
2.12.1.2
The annual report projections;
prepared under clause
2.12.1.1 shall be (f) The procedures for scheduling and
duly certified by an dispatch, load shedding and excess
independent auditor and generation;
approved by the PEM

(g) The determination of market prices; affecting dispatch of
scheduled generating
(h) The requirement relating to the units or pricing within
publication of information, in the spot market.
accordance with the timetable;
3.2.1.3 The market network
(i) The procedures for determining model may contain
settlements amounts and for paying such simplifications,
and receiving settlements; approximations,
equivalencies or
(j) The determination of prudential adaptations as may
requirements; and facilitate the dispatch,
pricing, or settlement
(k) The procedures for supporting processes.
transmission rights.
3.2.1.4 Where appropriate, the
3.2 MARKET NETWORK MODEL, TRADING Market Operator or the
NODES, AND PRICING ZONES System Operator may
recommend alterations
The price determination methodology to the market network
contained in this WESM Rules shall be model, so as to maintain:
subject to the approval of ERC.
(a) The relationship
3.2.1 Market Network Model between the market
network model and
3.2.1.1 The Market Operator shall the transmission
maintain and publish a network; and
market network model,
which will be used for (b) Consistency with
the purpose of central market requirements,
scheduling and dispatch, in accordance with
pricing and settlement. clauses 3.2.1.2 and
3.2.1.3.
3.2.1.2 The market network model
shall represent fairly, and 3.2.1.5 Any alteration
in a manner which will recommended under
facilitate consistent and clause 3.2.1.4 shall be
reliable operation of the approved by the PEM
power system: Board.
(a) The transmission 3.2.1.6 The Market Operator shall

network under the continuously adapt or
control of the System adjust the representation
Operator, and of the market network
model to accurately reflect
(b) Such other aspects power system conditions,
of the power within the relevant market
system which, when time frames, as advised
connected, may be by the System Operator
capable of materially under clause 3.5.3.
3.2.2 Market Trading Nodes system directly
connected to a
3.2.2.1 A market trading node network operated by
shall be defined for the System Operator
each node in the market at that market trading
network model that lies node; or
at the boundary between
a network operated by (d) A customer node.
the System Operator and
any apparatus, network 3.2.2.3 If a node in the market
or equipment used to network model for which
generate, convey or settlement is required lies
control the conveyance of at the interface between
energy and operated by two networks, or pieces of
a person other than the apparatus or equipment,
System Operator. used to generate, convey
or control the conveyance
3.2.2.2 Each market trading node of energy and both are
defined under clause operated by persons
3.2.2.1 shall: other than the System
Operator then a pair or
(a) Represent a metering pairs of market trading
installation capable of nodes shall be defined for
measuring all relevant that node and:
flows of energy into,
or out of, the power (a) Each pair of market
system operated by trading nodes shall
the System Operator represent a metering
at that market trading installation capable of
node; measuring all relevant
flows of energy
(b) Be associated with a between the relevant
Trading Participant networks, apparatus
who is required to or equipment at that
pay, or who shall be market network node;
paid, for that metered
quantity of energy, (b)
One node from
or any adjusted this pair of market
quantity calculated trading nodes shall
in accordance with be classified as a
clause 3.13.7, generator node
and the other as
and shall be classified a customer node
either as: depending on the
normal direction of
(c) A generator node if energy flow, prior
the node represents a to any adjustment
registered generating for bilaterals under
unit or generating clause 3.13.7; and

(c) Each of those market (a) Submit revised
trading nodes shall customer pricing
be associated with a zones, to the PEM
Trading Participant Board or approval;
who is required to and
pay, or who shall be
paid, for that metered (b) Publish any revised
quantity of energy, customer pricing
or any adjusted zones approved by
quantity calculated the PEM Board.
in accordance with
clause 3.13.7. 3.2.3.4 The Market Operator
shall, in consultation
3.2.2.4 The Market Operator with WESM Participants,
shall maintain, publish, continuously review
and continuously update the procedures for
a register of market determining the market
trading nodes, defined in network model, market
accordance with clause trading nodes, and
3.2.2.1 so as to accurately customer pricing zones set
reflect changes in the out in this chapter 3 and,
market network model to the extent the Market
and the WESM Member Operator considers
responsible for each it to be reasonably
market trading node. necessary to promote
the WESM objectives,
3.2.3 Customer Pricing Zones the Market Operator may
recommend changes
3.2.3.1 The Market Operator shall to these procedures in
maintain and publish the accordance with the rule
customer pricing zones to change process set out in
be used for the settlement chapter 8.
of energy for Customers.
3.3 ANCILLARY SERVICES
3.2.3.2 Customer nodes may be
grouped into a customer 3.3.1 Introduction
pricing zone. All Customers
within a customer pricing 3.3.1.1 Ancillary services are
zone shall face the same services that are essential
price for electricity to the management of
consumed. power system security,
that facilitate orderly
3.2.3.3 As long as customer pricing trading in electricity and
zones are employed, the ensure that electricity
Market Operator shall supplies are of an
conduct a periodic review acceptable quality.
and evaluation of existing
customer pricing zones, 3.3.1.2 Without limitation,
and shall: ancillary services may
include
(a)
The provision of performance
sufficient regulating specified in the Grid
reserve to meet Code and Distribution
fluctuations in load Code which requires
occurring within a some level of ancillary
trading interval; services to be
provided by Ancillary
(b)
The provision of Services Providers;
sufficient contingency
reserve to maintain (b) By the System
power system Operator purchasing
frequency; ancillary services
in accordance with
(c)
The provision of clause 3.3.3.
dispatchable reserve
available to respond 3.3.2 Ancillary Services Contracting by
to a re-dispatch the System Operator
performed during a
trading interval, on 3.3.2.1 The System Operator shall
either a regular or an use reasonable endeavors
ad hoc basis; to ensure that sufficient
facilities are available and
(d)
The provision of operable to provide for:
reactive support to
guard against power (a) The maintenance or
system failure; and restoration of power
system security
(e)
The provision of under emergency
black start capability conditions;
to allow restoration
of power system (b) The restoration of
operation after a all or any part of the
complete failure of power system to its
the power system satisfactory operating
or part of the power state, following an
system. emergency, threat
to system security or
3.3.1.3 The requirements for force majeure event;
ancillary services are to be and
met in the following ways:
(c) The availability, at all
(a) By the System times, of the number
Operator, in of independent
consultation with the power sources able to
Market Operator and provide black start-up
WESM Participants, facilities, determined
setting minimum in accordance with
standards in the procedures
relation to technical developed by the

Market Operator the required ancillary
to ascertain the services; or
quantities of ancillary
services which the (c) Where applicable,
System Operator shall by competitive spot
purchase. market trading in
accordance with
3.3.2.2 The System Operator shall clause 3.3.4.
use reasonable endeavors
to enter into ancillary 3.3.3.3 The System Operator shall
services agreements to negotiate any ancillary
provide sufficient ancillary services agreements
services to meet the with Ancillary Services
requirements of clause Providers who are
3.3.2.1, subject to clause Direct WESM Members
3.3.3. on commercial terms
acceptable to the parties
3.3.3 Ancillary Services Agreements and at arms length,
subject to clause 3.3.3.2.
3.3.3.1 The System Operator shall
arrange for the provision 3.3.3.4 Payment for ancillary
of adequate reserves for services purchased under
each region in accordance an ancillary services
with clause 3.3.3.2. agreement may include:
3.3.3.2 The System Operator shall (a)

A payment for
arrange for the provision both contracted
of adequate ancillary capabilities and a
services for each region measure of the
either: ancillary services
provided;
(a) By competitive
tendering process, (b) A demonstrable spot
administered by the market opportunity
Market Operator, cost, that is lost spot
whereby a number market revenue or
of Ancillary Services opportunity costs
Providers can provide incurred by the
a particular category Ancillary Services
of ancillary services; Provider as a result
or of providing the
ancillary services;
(b) By negotiating
contracts directly (c) A fair return to the
with an Ancillary Ancillary Services
Services Provider Provider in respect of
who is a Direct WESM any additional direct
Member, where only costs associated
one Ancillary Services with providing the
Provider can provide ancillary service;
(d) When applicable, coordination with the
subject to clause System Operator, shall
3.3.4.1, a price for establish and administer
that ancillary service a spot market for the
established by a purchase of certain
competitive spot reserve categories.
market mechanism.
3.3.4.2 The reserve categories
3.3.3.5 Payments for ancillary to be traded in the spot
services that are provided market shall include:
are to be made by the
Market Operator via the (a) Regulating reserve,
settlements system in being the ability to
accordance with clause respond to small
3.13.14. fluctuations in system
frequency including
3.3.3.6 Ancillary services but not limited to
agreements shall contain fluctuations caused
a provision pursuant to by load fluctuations;
which the capability of
the relevant Ancillary (b) Contingency reserve,
Services Provider to being the ability
provide ancillary services to respond to a
shall be demonstrated significant decrease
from time to time to the in system frequency
satisfaction of the System including but not
Operator according to the limited to a decrease
standard test procedures in system frequency in
established under the an interconnected AC
Grid Code and Distribution network as a result of
Code. a credible contingency
affecting one (or
3.3.3.7 Any dispute between more) Generation
the System Operator and Companies within
the Ancillary Services that network, or
Provider in relation transmission flows
to the determination into that network;
of a payment under and
an ancillary services
agreement shall be (c) Such other reserve
determined by the Dispute categories as may
Resolution Administrator from time to time
in accordance with clause be proposed by the
7.3. Market Operator, in
consultation with the
3.3.4 Reserve Market Arrangements System Operator, and
with WESM Members,
3.3.4.1 When reasonably feasible, and approved by the
the Market Operator, in PEM Board.

3.3.5 Ancillary Services Cost Recovery the relevant reserve cost
recovery zone in the form
3.3.5.1 The System Operator of reserve cost recovery
shall maintain and publish charges to be determined
reserve cost recovery in accordance with the
zones within which principles set out in clause
reserve cost recovery 3.3.5.4.
charges may be recovered
to meet each locationally 3.3.5.4 When allocating reserve
specific requirement. cost recovery charges
to Trading Participants
3.3.5.2 The costs of ancillary in a particular reserve
services are to be cost recovery zone as
recovered through the published in clause 3.3.5.1
settlement amounts the Market Operator may
calculated by the Market recover:
Operator under clause
3.13.10: (a) The cost of regulating
reserve, in each
(a) In accordance with the reserve cost recovery
cost recovery formula zone, from:
to be developed by
the System Operator (1) Customers with
for the categories of load facilities
reserve which are connected in
defined in clause that reserve cost
3.3.4.2; and recovery zone,
under a formula
(b) From those WESM which shall
Members or others account for both
on whose behalf the the relative size
System Operator is of the customer
deemed to purchase loads, and the
each ancillary service, degree to which
in proportion to the they contribute to
benefits which are deviations from
considered to be their schedule
derived by those within the trading
WESM Members, in interval; and
respect of ancillary
services not included (2) S c h e d u l e d
in clause 3.3.5.2 (a). Generation
Companies
3.3.5.3 The costs of providing with generating
each locationally specific s y s t e m s
reserve requirement connected in
shall be allocated by the that reserve cost
Market Operator to those recovery zone
Trading Participants in under a formula

which shall 3.3.6.2 When justifiable in terms
account for both of power system security,
the relative size the System Operator
of the generating may direct any Ancillary
systems, and the Services Provider to
degree to which provide an ancillary
they deviate service in accordance with
from dispatch the Grid Code.
instructions,
3.3.7 Approval, Periodic Review and
(b)
The cost of Evaluation of Ancillary Service
contingency reserve, Arrangements
in each reserve cost
recovery zone, from: 3.3.7.1 The System Operator of
TRANSCO shall charge user
(1) G e n e r a t i o n fees for ancillary services
Companies to all electric power
with generating industry participants or
s y s t e m s self-generating entities
connected in connected to the grid.
that reserve cost Such fees shall be fixed by
recovery zone; the ERC after due notice
and and public hearing.
(2) Network Service 3.3.7.2 The System Operator,

Providers serving in consultation with
that reserve cost Market Operator and
recovery zone, WESM Participants shall
conduct a periodic review
under a formula and evaluation of the
which accounts for following:
the relative size of the
relevant generating (a) Ancillary services
system and c a t e g o r i e s ,
distribution network, ancillary services
their reliability, and arrangements and
the impact which ancillary services cost
failure may have on recovery formula;
conditions within that
reserve cost recovery (b) Reserve categories,
zone. reserve regions, and
locationally specific
3.3.6 Provision of Ancillary Services reserve requirements;
and
3.3.6.1 An Ancillary Services
Provider shall not (c) P r o c e d u r e s
unreasonably refuse to developed under
provide ancillary services. this clause 3.3 with
a view to refining

these procedures process set out in chapter
to promote the 8.
WESM objectives
and better meet 3.4
MARKET TRADING INTERVAL AND
the requirements of TIMETABLE
the power system
operation. 3.4.1 Trading Intervals
3.3.7.3 Any proposed changes 3.4.1.1 For the purpose of trading

to the ancillary service in energy and ancillary
categories, ancillary services, a trading
services arrangements, interval is one (1) hour,
ancillary services cost commencing on the hour.
recovery formula, reserve
categories, reserve regions 3.4.1.2 Only energy shall be
or locationally specific traded during the
reserve requirements interim WESM. Trading
that will affect the fees in ancillary services shall
of ancillary services shall be implemented upon
be filed by the System commencement of the
Operator of TRANSCO spot market for ancillary
with the ERC for approval. services established under
clause 3.3.4.
3.3.7.4 The System Operator
shall continuously adjust 3.4.2 Timetable
the reserve effectiveness
factors for each reserve 3.4.2.1 The Market Operator shall
facility category, and the operate the spot market
quantum of reserve to in accordance with the
be scheduled to meet timetable.
each locationally specific
reserve requirement 3.4.2.2 The timetable shall
by the market dispatch include the schedule
optimization model, so and procedure for the
as to accurately reflect following:
the power system
under existing or future (a) Determining and
conditions, within the publishing week
relevant market time ahead projections
frames, as advised by the including precise
System Operator under specification of the
clause 3.5.3.1. market horizon to
be used for such
3.3.7.5 Any proposed changes in projections;
the procedures reviewed
under this clause 3.3.7 (b) Determining and
shall be approved by the publishing day ahead
PEM Board in accordance projections including
with the rule change precise specification

of the market horizon included in the market
to be used for such network model, in
projections; accordance with clause
3.5.2.4 and the Grid Code
(c) Submitting offers, and Distribution Code.
bids and data; and
3.5.2.2 If there is any material
(d) If necessary, for any long term change in the
other action to be status or configuration
taken by the Market of a network under the
Operator, the System control of a Network
Operator, or any Services Provider, the
WESM Member standing network data
during the operation relevant to that network
of the spot market. shall be revised by the
relevant Network Service
3.4.2.3 The Market Operator shall Provider, and submitted
maintain, publish and to the System Operator.
continuously update the
timetable. 3.5.2.3 Each Network Service
Provider shall submit
3.4.2.4 Any proposed changes period-specific network
in the timetable and data variations to the
related procedures shall System Operator as soon
be approved by the PEM as any material change
Board in accordance with in previously submitted
the rule change process network data becomes
set out in chapter 8. apparent with respect
to the expected state of
3.5 SUBMISSION OF OFFERS, BIDS, AND DATA any of its networks in any
trading interval of any
3.5.1 Communications of Offers and Bids trading day in the current
week-ahead market
Each Trading Participant shall horizon.
provide to the Market Operator
the information required under 3.5.2.4 The standing network
this clause 3.5 in accordance with data and any variations
the electronic communication to that data submitted
procedures. in accordance with
clause 3.5.2.3 shall be
3.5.2 Network Service Provider Data provided by Network
Service Providers in a form
3.5.2.1 Each Network Service which allows the System
Provider shall submit Operator to readily derive
to the System Operator and verify the information
standing network data specified in Appendix A2,
relating to all network as it may pertain to any
elements which are under trading interval of any
that Network Service trading day in the week-
Provider’s control and ahead market horizon.
3.5.2.5 Each Network riding constraints or
Service Provider shall reserve requirements
immediately advise the constraints to be
System Operator of any applied in any trading
circumstances which interval in the current
threaten a significant week-ahead market
probability of material horizon to take
adverse change in the account of current,
state of its network in any or projected, system
trading interval of any conditions.
trading day in the current
week-ahead market 3.5.3.3 In determining whether
horizon. it is reasonably necessary
to advise the Market
3.5.3 System Operator Data Operator under clause
3.5.3.2, the System
3.5.3.1 The System Operator Operator shall take
shall submit to the into consideration its
Market Operator standing obligations with respect
network data relating to all to maintaining system
network elements which security in accordance
are under the Network with the WESM Rules, the
Service Provider’s control Act, the Grid Code and
and included in the Distribution Code, or any
market network model, other relevant regulatory
in accordance with the instruments.
timetable.
3.5.3.4 In acting on such advice,
3.5.3.2 Where necessary, the the Market Operator
System Operator shall, shall take full account of
in accordance with the its obligations to WESM
timetable, promptly Members with respect to
advise the Market maintaining the integrity
Operator to: of the market, and the
market network model,
(a) Vary the market as defined by the WESM
network model Rules, the Act, or any other
representation applicable regulatory
employed for any instruments.
trading interval in
the current week- 3.5.3.5 In accordance with the
ahead market horizon timetable, any revision
to take account of under clause 3.5.3.2 to
information received the system representation
from Network Service or constraints to be
Providers; and employed with respect
to any market trading
(b) Apply, or vary, any interval shall take effect
system security the next time a market
constraints, over- dispatch optimization
model run is initiated. absence of load shedding.
3.5.3.6 The System Operator 3.5.4.4 If load shedding is

shall advise the Market expected to occur in
Operator of any any trading interval,
circumstances which a restrained net load
threaten a significant forecast for that trading
probability of material interval shall be prepared
adverse change in the on the same basis, but
state of the network, or accounting for load
system, in any trading shedding to the extent
interval of any trading day that it is expected to occur.
in the current week-ahead
market horizon. 3.5.5 Generation Offers and Data
3.5.4 Load Forecasting 3.5.5.1 Each Scheduled

Generation Company
3.5.4.1 The Market Operator including Generation
shall prepare the net load Companies with bilateral
forecasts for each market contracts shall submit a
trading node at which standing generation offer
load can be expected to for each of its scheduled
occur. generating units for each
trading interval in each
3.5.4.2 Each net load forecast trading day of the week
shall be prepared in such in accordance with the
a way as to represent timetable.
the net load to be met
by scheduled generation, 3.5.5.2 Each generation offer shall
including losses occurring include the information
outside the system specified in Appendix
represented by the market A1.1.
network model, but
excluding any scheduled 3.5.5.3 Each Generating Company
load, and less: shall, in consultation with
the System Operator,
(a) N o n - s c h e d u l e d submit check data to
generation, and be used by the Market
Operator, in accordance
(b) Generation from NRE with clause 3.5.12, to
generating units with assist in determining
intermittent energy the validity of any
resource. generation offer which
may be submitted by the
3.5.4.3 The unrestrained net load Scheduled Generator.
forecast for any trading
interval shall be prepared 3.5.5.4 Each Non-Scheduled
so as to represent the net Generation Company shall
load as it would be, or submit a standing schedule
would have been, in the of loading levels for each
of its non-scheduled System Operator, submit
generating units for each check data for each of
trading interval in each its registered scheduled
trading day of the week load facilities to be used
in accordance with the by the Market Operator
timetable. in accordance with
clause 3.5.12, to assist in
3.5.5.5 Each NRE Generation determining the validity
Company with of any demand bid which
intermittent energy it may submit.
resource shall submit its
projected output for each 3.5.7 Generation Company Reserve
of its generating units for Offers
each trading interval in
each trading day of the 3.5.7.1 This section shall
week in accordance with apply only upon
the timetable. commencement of the
spot market for ancillary
3.5.6 Customer Demand Bids services established under
clause 3.3.4.
3.5.6.1 Each Customer may
submit a standing demand 3.5.7.2 When applicable, subject
bid in respect of each to clause 3.3.4.2, each
trading interval for each Scheduled Generator
of its registered scheduled registered as an Ancillary
load facilities for each Services Provider in
trading day of the week respect of a reserve facility
in accordance with the in a particular reserve
timetable. region shall submit a
standing reserve offer
3.5.6.2 Each demand bid for each of its relevant
submitted under clause reserve facilities in respect
3.5.6.1 shall: of that reserve region for
each trading interval for
(a) Correspond to each day of the week
load which has in accordance with the
been certified as timetable.
dispatchable, in
accordance with 3.5.7.3 Each reserve offer
the Grid Code and submitted by a Generation
Distribution Code; Company under clause
and 3.5.7.2 shall:
(b) Include the (a) Correspond to

information specified response capability of
in Appendix A1.3. the relevant reserve
facility which has been
3.5.6.3 Each Customer shall, in certified as meeting
consultation with the the relevant reserve
response standards,
for that reserve 3.5.8.3 Each reserve offer
facility category, submitted by a Customer
in accordance with under clause 3.5.8.2 shall:
the Grid Code and
Distribution Code; (a) Correspond to
and a load for that
Customer which
(b) Include the has been certified
information specified as interruptible in
in Appendix A1.2. accordance with
the Grid Code and
3.5.7.4 Each Generation Company Distribution Code;
registered as an Ancillary
Services Provider in (b) Correspond to the
respect of a reserve facility response capability of
shall, in consultation with the relevant reserve
the System Operator, facility registered
submit check data to for the provision of
be used by the Market interruptible load
Operator, in accordance which has been
with clause 3.5.12, to certified as meeting
assist in determining the the relevant reserve
validity of any reserve response standards
offer which it submits. for that reserve
facility category in
3.5.8 Customer Reserve Offers accordance with
the Grid Code and
3.5.8.1 This section shall Distribution Code;
apply only upon and
commencement of the
spot market for ancillary (c) Include the
services established under information specified
clause 3.3.4. in Appendix A2.
3.5.8.2 When applicable, subject 3.5.8.4 Each Customer registered

to clause 3.3.4.2, each as an Ancillary Services
Customer registered as an Provider in respect of a
Ancillary Services Provider reserve facility shall, in
in respect of a reserve consultation with the
facility in a particular System Operator, submit
reserve region may submit to the Market Operator
a standing reserve offer a check data for each of
for each of its interruptible its reserve facility, to be
load facilities in respect used in accordance with
of that reserve region clause 3.5.12, to assist in
for each trading interval determining the validity
for each day of the week of its reserve offer.
in accordance with the
timetable. 3.5.9 Revision of Standing Offers/Bids

3.5.9.1 A standing generation standing bids shall be effective
offer, a standing reserve in the absence of revised market
offer, a standing schedule offers and market bids for the
of loading levels or a corresponding trading interval and
standing demand bid for day of the week.
any trading interval in
any day of the week may 3.5.11 Revision of Market Offers/Bids
be revised by the relevant
Generation Company or 3.5.11.1 Each scheduled Trading
Customer in accordance Participant which has
with the timetable. submitted standing offers
or bids may revise any of
3.5.9.2 A standing generation its market offers or market
offer, a standing reserve bids for any trading
offer, or a standing interval in any trading
demand bid which is day of the current week-
revised under clause ahead market horizon
3.5.9.1: in accordance with the
timetable, and subject to
(a) Shall take effect the clause 3.5.11.3 and each
next time a week revised market offer or
ahead projection market bid submitted shall
is initiated, in provide the information
accordance with the set out in Appendix A2.
timetable; and
3.5.11.2Each Generation Company
(b) Shall only affect the which has submitted a
offers employed schedule of loading levels
in market dispatch for its non-scheduled
optimization generating units shall
model runs used revise its schedule
to determine of loading levels if it
projections, dispatch, reasonably expects that
or pricing for periods any of its anticipated
not already covered loading levels will differ
by week-ahead materially from those
projections which previously submitted.
have already been
published, or whose 3.5.11.3 In accordance with the
preparation has timetable, a revised
already been initiated market offer or market bid
at the time when the submitted under clause
revised offer or bid is 3.5.11.1 shall take effect
accepted. the next time a dispatch,
pricing or day-ahead
3.5.10 Initial setting of Market Offers/Bids projection run is initiated.
When the Market Operator 3.5.11.4 Market bids or market

updates a market projection under offers for any trading
clause 3.7, the standing offers and interval shall be revised by
Trading Participants if, at 3.5.11.6 Trading Participants shall
any time, they no longer immediately advise the
represent a reasonable System Operator and
estimate of: Market Operator of any
circumstances which
(a) The expected threaten a significant
availability of the probability of material
relevant generating adverse change in the
unit or scheduled state of their facilities in
load for that trading any trading interval of any
interval; or trading day in the current
week-ahead market
(b) The demand bids or horizon.
offers likely to apply
for the real time 3.5.11.7 Prior to the spot market
dispatch optimization commencement date,
of that trading the System Operator,
interval. in consultation with
WESM Members, shall
3.5.11.5 The Market Operator, publish a non-exhaustive
in consultation with the list of events that will
System Operator and be deemed to be or to
WESM Members, and with cause a material adverse
the approval of the PEM change in circumstances
Board, shall determine for the purposes of clause
and publish criteria to 3.5.11.6.
determine the meaning
of “reasonable estimate” 3.5.11.8 Each market offer or
under clause 3.5.11.4, market bid for a particular
taking account of: trading interval is deemed
to stand with effect from
(a) The time remaining the time it is initiated
until the occurrence under clause 3.5.10 or
of the relevant trading revised under clause
interval involved, 3.5.11 and will be used
in preparing all market
(b)
The impact on forecasts, dispatch targets
the market of any or prices for that trading
variations to offers or interval, unless and until
demand bids, a valid revision to the
market offer is accepted
(c) The different by the Market Operator.
categories of WESM
Members, and 3.5.12 Confirmation of Receipt of Valid
Offers and Bids
(d) The different
circumstances which 3.5.12.1 To be valid, generation
may have given rise to offers, reserve offers or
the need to make the demand bids shall be
relevant variation. submitted by the relevant
Trading Participant: 3.5.13 Over-riding Constraints
(a) In accordance with 3.5.13.1 Subject to clause 3.5.13.3,

clause 3.5.1, the System Operator
(b) In accordance with may recommend to the
the timetable; and Market Operator that
(c) Consistent with constraints be imposed
the check data on the energy dispatch
submitted by the or reserve dispatch of
Trading Participant a specific facility which
under clauses 3.5.5.3, may have the effect of
3.5.6.3, and 3.5.7.4 as fixing or bounding the
appropriate. generation or reserve
scheduled from that plant,
3.5.12.2 The Market Operator if the System Operator
shall send to each Trading reasonably believes that
Participant from whom the generation offer,
it has received a valid reserve offer or demand
generation offer, reserve bid does not provide a
offer or valid demand bid, valid representation of
an electronic confirmation the actual or expected
of receipt and acceptance capability of that facility
of that generation offer, in that trading interval,
reserve offer or demand and where, in the
bid in accordance with the reasonable opinion of the
timetable. System Operator, such
misrepresentation seems
3.5.12.3 If a Trading Participant likely to impact materially
does not receive on dispatch or pricing.
confirmation of receipt
under clause 3.5.12.2, 3.5.13.2 In situations where offers
from the Market Operator are structured in such
in accordance with the a way that provision
timetable, the Trading of any level of reserve
Participant shall contact services prohibits the
the Market Operator to simultaneous provision
determine whether or of very low or high
not the generation offer, levels of generation, the
reserve offer or demand System Operator may also
bid was received. recommend to the Market
Operator that constraints
3.5.12.4 If the offer or bid is invalid, should be imposed or
the Market Operator relaxed so as to allow
shall promptly inform generating systems
the Trading Participant to operate in a range
to resubmit a corrected which allows increased
generation offer, reserve production of either
offer or demand bid in reserve or generation,
accordance with clause as appropriate, having
3.5.11. regard to:
(a) The commercial or relax constraints
interests of Trading under clause 3.5.13.1 or
Participants; and 3.5.13.2.
(b) Market priorities, 3.5.13.6 If a review conducted

as reflected by the under clause 3.5.13.5
relevant market concludes that a Trading
prices for energy Participant or the Market
and reserves in the Operator or the System
relevant reserve Operator has acted
region. inappropriately, and
has thereby imposed
3.5.13.3 Prior to the spot market significant costs on other
commencement date, parties, the market
the System Operator, surveillance committee
in consultation with may refer that matter to
Trading Participants and the Disputes Resolution
the Market Operator, Administrator under
shall publish a general clause 7.2 or require
description of the nature that Trading Participant
of circumstances which or the Market Operator
will cause it to recommend or the System Operator
imposition or relaxation of (as the case may be) to
constraints under clauses pay compensation in
3.5.13.1 or 3.5.13.2 and accordance with clause
the type of action which 7.2.
may be taken under those
circumstances. 3.6
MARKET DISPATCH OPTIMIZATION
MODEL
3.5.13.4 When acting under clause
3.5.13.1 or 3.5.13.2, the 3.6.1 Model Definition
System Operator shall:
3.6.1.1 The market dispatch
(a) Notify the relevant optimization model
Trading Participant of simultaneously
the situation as soon determines dispatch
as practicable; and targets for the end of a
trading interval, reserve
(b) Record appropriate allocations for the trading
details of the incident. interval, associated energy
prices at all trading nodes
3.5.13.5 At the request of the in the power system and
Market Operator, the when applicable reserve
System Operator or prices for all reserve
any WESM Member, regions.
the market surveillance
committee may review any 3.6.1.2 The Market Operator shall
decision by the Market maintain and publish the
Operator to impose formulation of the market
dispatch optimization
model, and the clause 3.5.13;
performance standards,
in accordance with the (b) C o n s t r a i n t s
WESM objectives. representing
the technical
3.6.1.3 The objective of the market characteristics of
dispatch optimization reserve facility
model shall be to maximize categories, including
the value of dispatched when applicable
load based on dispatch reserve effectiveness
bids, minus: factors initially set at
one (1);
(a) The cost of dispatched
generation based on (c) Energy balance
dispatched offers; equations for each
node in the market
(b) The cost of dispatched network model
reserves based on ensuring that the net
reserves contracted load forecast for the
for or when applicable end of the trading
reserve offers; and interval at each
market trading node
(c) The cost of constraint as determined by the
violation based on the Market Operator is
constraint violation met;
coefficients.
(d) C o n s t r a i n t s
3.6.1.4 In formulating the market representing
dispatch optimization limitations on the
model, the Market ramp rate from the
Operator and System plant status deemed
Operator shall ensure to apply prior to the
that the dispatch for each commencement of
trading interval is made the trading interval;
subject to:
(e) Constraints defining
(a) C o n s t r a i n t s power system reserve
representing limits requirements as
on generation offer, provided by the
demand bid and System Operator
when applicable under clause 3.5.3;
reserve quantities
as specified by (f) Network constraints,
Trading Participants as implied by the
in accordance with market network
clause 3.5, except model provided by
to the extent that as the System Operator
they may be relaxed under clause 3.5.3;
in accordance with

(g) Loss and impedance and the constraint
characteristics of structure defined by
market network clause 3.6.1.4, and
lines, as advised by specifying dispatch
the System Operator targets for each
under clause 3.5.3, scheduled generating
and defined in unit, scheduled load
Appendix A2; and reserve facility;
(h) Constraints on HVDC (b) It will produce a

link operations, as schedule of flows on
advised by the System each transmission
Operator under line corresponding
clause 3.5.3, and to the optimal
defined in Appendix dispatch determined
A2; in accordance with
clause 3.6.1.5 (a);
(i) Power flow equations,
as defined by a DC (c) It will produce energy
approximation to an prices for each market
AC power flow within trading node, and
AC sub-systems; when applicable
reserve price for each
(j) Any overriding reserve region, so that
c o n s t r a i n t s the recommended
imposed on the dispatch targets
recommendation of for each individual
the System Operator Trading Participant
in accordance with would be optimal for
clause 3.5.13; and that participant at
those prices, given
(k) Any additional their offers and
constraints due to demand bids and
ancillary services after accounting for
or system security other constraints
requirements. which may affect that
Trading Participant;
3.6.1.5 The market dispatch and
optimization model
shall be designed so (d)
It will perform
that, subject to the its functions in
approximations and accordance with
adjustments provided for the performance
by clause 3.6.4: standards approved
by the PEM Board.
(a) It will produce an
optimal dispatch given 3.6.2 Constraint Violation Coefficients
the objective defined
by clause 3.6.1.3, 3.6.2.1 The constraint violation
coefficients shall:
(a) Be set so as to ensure length of time for
that the market which the constraint
dispatch model will has been violated.
always find a solution
which satisfies all 3.6.2.3 The constraint violation
constraints, if such a coefficients for the nodal
solution exists; energy balance equations
referred to in clause
(b) Be set so as to 3.6.1.4 (c):
ensure that binding
constraints are (a) Will be known as the
prioritized, such nodal value of lost
that constraints load (nodal VoLL); and
resulting in the
lowest reduction (b) May vary from node
in the capability of to node and/or be set
the network, load or so as to reflect load
generating units will shedding priorities.
occur first; and
3.6.3 Interpretation of Model Outputs.
(c) Be set so as to ensure
that the prices The output of the market dispatch
produced by the optimization model is to be
market optimization interpreted as providing energy
algorithm will be and when applicable reserve
appropriate in all the dispatch targets for the end of
circumstances, taking each trading interval to which
into consideration the the market dispatch optimization
processes defined in model is applied.
section 3.10 to adjust
or override those 3.6.4 Modelling Approximations
prices for settlement
purposes. 3.6.4.1 If the Market Operator
deems it to be appropriate
3.6.2.2 The constraint violation in all the circumstances,
coefficients may: the market dispatch
optimization model may
(a) Vary according to incorporate reasonable
the time of day, or approximations so as to
on any other basis as render the optimization
determined by the problem solvable using an
Market Operator; established optimization
methodology such as
(b) Increase progressively linear programming.
as the constraint
becomes more 3.6.4.2 Any approximations
severe; and introduced in accordance
with clause 3.6.4.1:
(c) Increase or decrease
as a function of the
(a) May involve producing model results for each trading
a piece-wise linear interval, in the form that is written.
approximation to a The model results shall not be
non-linear function; challenged ex-post.
(b) May involve In the event that Trading

producing a convex Participants identify solution
approximation to a inconsistencies with the stated
non-convex function; definition and objectives of the
model, the Market Operator will
(c) May include formulate a plan to correct the
a u t o m a t e d model.
procedures to deal
with situations in Notwithstanding such model
which a choice shall solution errors, the spot market
be made to impose shall continue to be cleared
or relax certain according to the model results
constraints, as until a model revision is put into
provided for in clause service in accordance with clause
3.5.13; and 3.6.5.
(d) Shall preserve, 3.7 MARKET PROJECTIONS

under all operating
conditions, an The Market Operator shall prepare
accuracy which is and publish week ahead projections
generally acceptable and day ahead projections using the
to all WESM Members market dispatch optimization model, in
and particularly to any accordance with the timetable.
Trading Participants
directly affected by 3.7.1 Week Ahead Projections
such approximations.
3.7.1.1 Week ahead projections
3.6.5 Model Development shall be prepared by
the Market Operator
From time to time, the System and published daily, in
Operator and the Market Operator accordance with the
shall investigate the scope for timetable, to assist Trading
further development of the market Participants to anticipate
dispatch optimization model and respond to the range
beyond the minimum requirements of spot market conditions
specified in clause 3.6.1 and, which might reasonably
submit their recommendations be expected to occur over
in a report to the PEM Board for the forthcoming week.
public consultation.
3.7.1.2 Market projections shall
3.6.6 Market Settlement be prepared for all trading
intervals within the
The market shall be cleared, relevant market horizon as
prices determined, and dispatch defined in the timetable.
determined according to the
3.7.2 Day Ahead Projections (c) The forecast demand
information prepared
3.7.2.1 Day ahead projections in accordance with
shall be prepared using clause 3.5.4;
the market dispatch
optimization model by (d) The generation
the Market Operator offer information
and published regularly submitted by each
through the day, in relevant Trading
accordance with the Participant in
timetable, to assist Trading accordance with
Participants to anticipate clause 3.5.5;
and respond to the range
of spot market conditions (e) The loading levels for
which might reasonably each non-scheduled
be expected to occur over and NRE generating
the forthcoming day. units with intermittent
energy resource in
3.7.2.2 Market projections shall accordance with
be prepared for all trading clause 3.5.5; and
intervals within the
relevant market horizon as (f) When applicable,
defined in the timetable. the reserve offer
i n fo r m a t i o n
3.7.3 Preparation of Market Projections submitted by each
relevant Trading
3.7.3.1 Each market projection Participant in
shall take into accordance with
consideration: clause 3.5.7 and 3.5.8.
(a) The network 3.7.3.2 Prior to the preparation

service provider of each set of market
data prepared in projections, the Market
accordance with Operator shall, in
clause 3.5.2; consultation with
(b) R e s e r v e prepare an expected
requirements, the unrestrained net load
anticipated market forecast in accordance
network model with the procedures
configuration, developed under clause
constraints and 3.5.4, and such number
system security of other load scenarios
requirements for as may be determined in
each reserve region, consultation with WESM
as advised by the Participants and approved
System Operator by the PEM Board
in accordance with .
clause 3.5.3;

3.7.3.3 The Market Operator (b)
In respect of
shall prepare a market subsequent trading
projection corresponding intervals, as the
to each load scenario projected power
developed under clause system conditions
3.7.3.2. determined by the
market dispatch
3.7.3.4 When a probability of optimization model
a significant failure in for the end of the
the power system has previous trading
been advised to the interval in that market
System Operator, the projection.
Market Operator may,
in consultation with 3.7.3.7 The Market Operator
the System Operator, shall publish additional
also prepare market updated versions of a
projections in which the market projection in the
constraint structure is event of changes which, in
modified to represent a the opinion of the Market
situation in which such Operator, are material
failures occur. and which should be
communicated to Trading
3.7.3.5 Market projections Participants.
shall be prepared by
the Market Operator 3.7.3.8 The Market Operator
through the application shall document the exact
of the market dispatch procedure it uses for
optimization model to all preparation of market
trading intervals within projections and make the
the relevant market procedure available to all
horizon as defined in the Trading Participants.
timetable.
3.7.4 Published Information
3.7.3.6 When preparing a market
projection, the starting 3.7.4.1 Based on the information
conditions for each referred to in clause 3.7.3,
successive trading interval each market projection
shall be determined: published by the Market
Operator in accordance
(a) In respect of the with the timetable shall
first trading interval, contain the following
as the actual, or information for each
expected, power trading interval in the
system conditions period covered by the
at the time of the market projection:
commencement of
the market projection; (a) The assumed net
and load forecast at each
market network node,
plus required reserves
for each reserve (4) Trading intervals
region; for which low
or inadequate
(b) The required level capacity margins
of reserve for each are projected to
reserve region; apply; and
(5) P r o j e c t e d
(c) Any modifications congestion on
to plant or network market network
availability which lines; and
the Market Operator (6) C o n s t r a i n t
may have made v i o l a t i o n
under clause 3.5.13 coefficients.
in forming this
projection; 3.8
SCHEDULING AND DISPATCH
IMPLEMENTATION
(d) Projected aggregate
dispatch of scheduled 3.8.1 Responsibilites of the Market
generating units and Operator.
scheduled load at
each market network Prior to commencement of each
node; trading interval, the Market
Operator shall, in consultation
(e) Projected aggregate with the Grid Operator, and in
cleared reserve accordance with the timetable:
quantities for reserve
regions and reserve (a) Determine, or estimate, the
facility categories; status of all generation facility
for that trading interval;
(f) The projected market
price for each market (b) Prepare a forecast of the
trading node; unrestrained net load expected
at each market trading node
(g) When applicable for the end of that trading
projected reserve interval;
prices for each reserve
region; and (c) Adjust that unrestrained net
load forecast to account for
(h) Identification and load shedding, if required, in
quantification of: accordance with clause 3.9.5;
(1) P r o j e c t e d (d)
Determine the most
load shedding appropriate network
requirement; configuration and state to be
(2) P r o j e c t e d assumed for the end of that
violations of trading interval;
system security;
(3) Projected failure (e) Use the market dispatch
to meet reserve optimization model to
requirements; determine the target
loading level in MW for each (a) Situations in which it
scheduled generating unit became necessary for
or scheduled load and for dispatch instructions
each reserve facility for the to deviate from the
end of that trading interval dispatch targets
using the latest data from the determined by the
System Operator and Trading Market Operator
Participants; and during the trading
interval;
(f) Submit to the System Operator
the dispatch schedule (b) Load shedding or
containing the target loading other directions
levels to be achieved at the issued by the System
end of that trading interval, Operator during the
determined in accordance trading interval;
with clause 3.8.1 (e).
(c) Significant incidents
3.8.2 Responsibilities of the System in which contingency
Operator reserve was called
upon during the
3.8.2.1 During each trading trading interval;
interval, the System
Operator shall use its (d) Network constraints
reasonable endeavors to: which affected
dispatch during the
(a) Implement the trading interval;
dispatch targets
determined by the (e) Binding security
Market Operator; constraints which
affected dispatch
(b) Maintain system during the trading
security consistent interval; and
with the requirements
of the Grid Code; (f) O p e r a t i o n a l
irregularities arising
(c) Implement load during the trading
shedding, if necessary, interval including
as provided by clause but not limited to
3.9; and any circumstances
in which there was
(d) Intervene, where prima facie evidence
necessary, as of a failure to follow
provided by clauses dispatch instructions.
6.3 and 6.5.
3.8.3 Communication of target loading
3.8.2.2 After each trading interval, levels
timetable, the System The System Operator shall
Operator shall advise the communicate the target loading
Market Operator of: levels to Trading Participants for
each trading interval prior to the to deal with such circumstances, in
commencement of that trading accordance with clause 3.3.
interval in accordance with the
timetable and consistent with the 3.8.7 Dispatch Tolerances
Grid Code.
3.8.7.1 Dispatch tolerances shall
3.8.4 Dispatched Trading Participants be set to allow limits
on the extent to which
Trading Participants who are Trading Participants may
dispatched shall use reasonable deviate from dispatch
endeavors to achieve a linear ramp targets issued by the
rate over the trading interval to System Operator.
reach the target loading level by
the end of that trading interval 3.8.7.2 The Market Operator
and within the dispatch tolerances shall maintain and publish
specified in clause 3.8.7 and those dispatch tolerances
Trading Participants will not be standards developed by
required to operate in any different the System Operator for
fashion unless required to: each type of plant, and
location, in accordance
(a) Respond in accordance with with the Grid Code and
reserve or ancillary service Distribution Code.
contracts; or
3.8.8 Sanctions of Trading Participants
(b) Respond to a direction in
accordance with clauses 6.3 Any Trading Participant who
and 6.5. consistently fails to use its
reasonable endeavors to act
3.8.5 Ramp Rate of Trading Participant in accordance with dispatch
instructions issued under clause
Where applicable, Trading 3.8.3, or who breaches the dispatch
Participants will be assumed to tolerance standards published
have a linear ramp rate over that under clause 3.8.7.2, may be liable
trading interval to reach the target of a sanction imposed under clause
loading levels by the end of that 7.2.
trading interval.
3.9 TREATMENT OF LOAD SHEDDING AND
3.8.6 Deviations from the Ramp Rate EXCESS GENERATION
If Trading Participants in some part 3.9.1 Direction To Conduct Load

of the power system deviate in Shedding
aggregate from the assumed linear
ramp rate for any reason or as a The System Operator may direct
result of any cause including the a Trading Participant to conduct
initiation of load shedding under load shedding in response to:
clause 3.9.3, these deviations
shall be dealt with by the System (a) An overall shortage of energy
Operator, utilizing the reserves, or at a node or in a region
other ancillary services scheduled specified in the market
network model; or
(b) Other network conditions, (b) May initiate load shedding
in response to any other
as determined by the System circumstances which it
Operator in accordance with the reasonably considers
procedures established under the necessitates such action under
Grid Code and Distribution Code. the Grid Code and Distribution
Code or any other applicable
3.9.2 Market Operator Advice On Load regulatory instrument.
Shedding
3.9.4 Advising of Load Shedding
In the event that:
If it is anticipated that load
(a) Day ahead projections shedding will occur in a trading
performed under clause 3.7; interval, the System Operator shall,
or as soon as possible, advise its load
shedding plans to:
(b) Dispatch optimization
performed under clause 3.8, (a) The Market Operator; and
indicate that nodal energy prices (b) Trading Participants who are
are expected to be equal to, or likely to be directly affected by
exceed, nodal VoLL at any customer such load shedding.
nodes in the market network
model, then the Market Operator 3.9.5 Revising Forecasts
shall immediately inform the
System Operator of the likelihood If advised by the System Operator
of initiating load shedding at those of the likelihood of load shedding
nodes. in any trading interval under
clause 3.9.4, the Market Operator
3.9.3 System Operator Responsibility to shall, as soon as possible:
Initiate Load Shedding
(a) If practical within the time
The System Operator: frame remaining before the
start of that trading interval,
(a) Shall, if advised by the Market revise the load forecasts to
Operator under clause 3.9.2, be used to determine the
consider the need to initiate dispatch schedule for that
load shedding, at those nodes, trading interval in accordance
or at other nodes, after taking with clause 3.5.4.4, to account
account of the load shedding for those load shedding plans;
targets from the relevant and
dispatch optimization, and any
other considerations which (b) Issue additional day ahead
the System Operator considers projections, if required, under
relevant under the Grid Code clause 3.7.3.7.
and Distribution Code and any
other applicable regulatory 3.9.6 Pricing Error Notice
instrument; and

At the commencement of each Operator and the Market
trading interval in which the load Operator, in consultation
forecast has been adjusted to with WESM Participants,
account for possible load shedding, and subject to approval by
or as soon as possible thereafter, the PEM Board.
the Market Operator shall issue a
pricing error notice, in accordance 3.10 DETERMINATION OF MARKET PRICES
with clause 3.10.5.
3.10.1 Calculation of Prices
3.9.7 Management of Load Shedding
For each trading interval, the
The System Operator and the Market Operator shall calculate,
Market Operator shall manage and publish in accordance with the
all aspects of dispatch and timetable:
pricing during periods when
load shedding is required in (a) Ex-ante nodal energy prices in
accordance with the detailed accordance with clause 3.10.2;
procedures to be developed by the (b) Ex-ante zonal energy prices in
System Operator and the Market accordance with clause 3.10.3;
Operator, in consultation with (c) Ex-post nodal energy prices in
WESM Participants, and subject accordance with clause 3.10.6;
to approval by the PEM Board, (d) Ex-post zonal energy prices in
consistent with the Grid Code and accordance with clause 3.10.8;
Distribution Code. and
(e) When applicable, zonal
3.9.8 Management Procedures for reserve prices in accordance
Excess Generation with clause 3.10.10.
3.9.8.1 Should either the 3.10.2 Determination of Ex-Ante Nodal

dispatch optimization, or Energy Price
any market projection,
indicate excess generation The ex-ante nodal energy price
at any node, the Market for each market trading node in
Operator shall advise the any trading interval shall, subject
System Operator that to clause 3.10.5, be determined
it may be necessary to as the shadow price on the
require some generating energy balance equation for that
systems to shut down. market trading node formed in
accordance with clause 3.6.1.4
3.9.8.2 Where necessary to shut (c), in the dispatch optimization
down generating systems performed for that trading interval
under clause 3.9.8.1, the in accordance with clause 3.8.1.
System Operator and
the Market Operator 3.10.3 Determination of Ex-Ante Zonal
shall manage all aspects Energy Prices
of dispatch and pricing
in accordance with Ex-ante zonal energy prices shall
the procedures to be be determined for each customer
developed by the System pricing zone.

3.10.4 Publishing Ex-Ante Prices optimization performed, in
According to Timetable accordance with the timetable, to
determine target dispatch levels
The Market Operator shall publish for the end of that trading interval,
the ex-ante nodal energy prices and assuming:
the ex-ante zonal energy prices,
prior to the commencement of (a) The plant status for the
the trading interval to which they beginning of that trading
apply in accordance with the interval as determined for the
timetable. ex-ante dispatch optimization
or, if load shedding occurred in
3.10.5 Pricing Error Notice the previous trading interval,
the plant status which would
In the event where no ex- have pertained at the end of
ante prices can be determined the previous trading interval,
or communicated within the as indicated by the targets
timeframe specified by the determined by the ex-post
timetable, or the calculated prices dispatch for the previous
are believed to be in error, as a trading interval;
result of load shedding or for any
other reason: (b) The generation offers which
applied at the beginning of the
(a) The Market Operator may trading interval;
issue a pricing error notice, in
which case the ex post prices (c) The unrestrained load
determined according to determined from metering
clause 3.10.7 shall also serve data, or estimated, after the
as ex-ante prices. occurrence of the trading
interval, to apply at each
(b) If no pricing error notice market network node on
is issued within the time average, over the trading
specified in the timetable after interval;
the start of a trading interval,
the ex-post prices shall serve as (d) A market network
ex-ante prices and shall stand configuration and network
irrespective of the outcome of state which the Market
any subsequent investigations Operator, in consultation
or resolution of any dispute. with the System Operator,
in its reasonable opinion
3.10.6 Determination of Ex-Post Nodal determines to best represent
Energy Price network conditions pertaining
for the duration of the trading
The ex-post nodal energy price for interval, as provided for by the
each market trading node shall be procedures developed under
determined as the shadow price clause 3.10.7; and
on the energy balance equation
for that market trading node, (e)
Any relevant constraints
formed in accordance with clause recommended by the System
3.6.1.4 (c), in a expost dispatch Operator to represent system

security conditions or actual load weighted average of the ex-
generation performance post nodal energy prices within a
over the trading interval, as customer pricing zone.
provided for by the procedures
developed under clause 3.10.9 Determination of Ex-Ante And Ex-
3.10.7. Post Energy Settlement Prices.
3.10.7 Procedures for Ex-Post Nodal Subject to clause 3.10.5, the ex-
Energy Price ante energy settlement prices and
ex-post energy settlement prices
The Market Operator, in for each market trading node in
consultation with WESM each trading interval shall be:
participants, and subject to
approval by the PEM Board, shall (a) The ex-ante zonal energy price
develop and publish the procedures and the ex-post zonal energy
to be employed in clauses 3.10.6 price for that trading interval
(d) and (e) in establishing the determined for that customer
network configuration and other pricing zone in accordance
constraints to be assumed for the with clauses 3.10.3 and 3.10.8,
determination of ex-post nodal respectively, if that node is
energy prices for circumstances deemed to be a customer
in which power system conditions node and to lie in a defined
materially change during the customer pricing zone; and
trading interval, with a view to
ensuring that: (b) The ex-ante nodal energy price
and the ex-post nodal energy
(a) Consistency is maintained price for that node, in that
between the market network trading interval, determined
configuration and state in accordance with clauses
determined in accordance 3.10.2 and 3.10.6, respectively,
with clause 3.10.6 (d), any for all other nodes.
constraints determined in
accordance with clause 3.10.6 3.10.10 Determination of Zonal Reserve
(e) and the unrestrained net Price
loads measured or estimated
for each market network node When applicable, the zonal reserve
in accordance with clause price for each market reserve
3.10.6 (c); and zone in each trading interval shall
be determined as the shadow
(b) The ex-post prices produced in price on the relevant reserve
accordance with clause 3.10.6, requirement constraint, defined in
properly and fairly represent accordance with clause 3.6.1.4 (e),
average conditions over the in the dispatch optimization for
trading interval. that trading interval and published
by the Market Operator before the
3.10.8 Determination of Ex-Post Zonal start of that trading interval.
Energy Prices
3.11 MARKET INFORMATION
The ex-post zonal energy prices
for each trading interval shall be 3.11.1 Market Information
3.11.1.1 The Market Operator shall (f) The dispatch bid or
publish the following: dispatch offer prices
and quantities; and
(a) Nodal energy prices
for each market (g) The time at which any
trading node; final dispatch offer
or dispatch bid was
(b) Zonal energy prices made.
for each customer
energy pricing zone; 3.11.1.3 Each trading day, in
accordance with the
(c) When applicable, timetable, the Market
reserve prices for Operator shall publish:
each reserve region;
and (a) The scheduled
generation or
(d) Binding network scheduled load and
constraints, scheduled reserves
for each scheduled
for each trading interval generating unit and
in accordance with the scheduled load,
timetable. respectively, in each
trading interval for
3.11.1.2 As part of the information the previous trading
record under clause 5.2.5, day; and
retain details of: (b) A summary of the
information provided
(a) Final dispatch offers to it with respect
and when applicable, to each trading
reserve offers; interval by the
System Operator
(b) Final dispatch bids; in accordance with
and clause 3.8.2.2.
(c) Actual availabilities of 3.11.2 Access to Information

generating units and
scheduled load; 3.11.2.1 All information relating to
the operation of the spot
(d) Including, for each market that the Market
trading interval and Operator is required to
dispatch offer and publish in accordance
dispatch bid: with the WESM Rules
shall be made available
(e) The identification by the Market Operator
of the Trading via the electronic
Participant submitting communications system.
the dispatch bid or
dispatch offer as the 3.11.2.2 If the Market Operator
case may be; makes information
available under locations, as evidenced by
clause 3.11.2.1 by WESM Member submissions;
additional means other
than the electronic (b) Uncommitted physical
communications system, capacity between those
the Market Operator may, locations, as indicated by
at its discretion, charge the difference between the
a fee for access to that physical capacity of the lines
information provided involved, and the transmission
that such fee reflects rights already issued; and
the Market Operator’s
costs of providing that (c) Economic feasibility
information. of supporting further
transmission rights, as
3.12 FINANCIAL TRANSMISSION RIGHTS indicated by the difference
between the line rental
3.12.1 Market for Transmission Rights trading amounts calculated
for particular lines in
When necessary or reasonably accordance with clause
feasible, the Market Operator shall 3.13.12, and the cost of
establish a market for transmission supporting transmission rights
rights as approved by the PEM already issued, as evidenced
Board. by the transmission rights
trading amounts calculated
3.12.2 Publication of Rental Information in accordance with clause
3.13.13.
The Market Operator shall
regularly publish in summary form 3.12.5 Issuing Transmission Rights
the rentals associated with each
market network line as calculated 3.12.5.1 Transmission rights may
under clause 3.13.12. be issued by the Market
Operator, and may be
3.12.3 Further Transmission Rights settled via the settlements
system, in accordance
From time to time, and at least with clause 3.13.15,
annually, the Market Operator provided:
shall assess the potential for the
issuance of further transmission (a)
The issuer of
rights, of the form provided for in the transmission
the settlements process defined by right enters into
clause 3.13. a commitment
to support that
3.12.4 Matters to Consider in Assessment transmission right,
in accordance with
The assessment shall take account clause 3.13.2 (d);
of the:
(b) The issuer of the
(a) Demand for transmission transmission right
rights between particular complies with

such prudential 3.13
SETTLEMENT QUANTITIES AND
requirements as may AMOUNTS
be approved by the
PEM Board under 3.13.1 Submission of Bilateral Contract
clause 3.14 taking Data
into account the
implied potential 3.13.1.1 Trading Participants
exposure of the issuer who sell electricity
to settlement price pursuant to bilateral
differences between contracts and wish
the nodes involved; those bilateral contracts
to be accounted for in
(c) The transmission right settlements shall, after
is defined between each trading day, in
two market trading accordance with the
nodes; and timetable:
(d) The relevant details (a) Submit a schedule

of the transmission to the Market
rights are notified to Operator specifying
the Market Operator, the MWH bilateral
in accordance with sell quantities
clause 3.13.2. at each relevant
market trading
3.12.5.2 A WESM Member may node, in each
request the Market trading interval of
Operator to make that trading day;
available a transmission
(b) Identify the
right at an appropriate
counterparty to the
price.
bilateral contract;
and
3.12.5.3 The issuance of a
transmission right is (c) Provide evidence
not to be unreasonably that the
withheld. counterparty to the
bilateral contract
3.12.6 Accounting for Net Income agrees with the
submission made
The net income that will be under this clause
derived by the Market Operator 3.13.1.1.
from the transactions required
under clause 3.13.16 or from the 3.13.1.2 Bilateral sell quantities
sale of transmission rights, shall submitted in accordance
be clearly accounted for, and with clause 3.13.1.1 (a)
taken into account when setting are to be deemed to be
the allowable charges under any bilateral buy quantities
regulatory instruments applicable for the party identified
to the Market Operator. in clause 3.13.1.1 (b), at
the same market trading
node.
3.13.2 Submission of Transmission Right evidence of that
Data agreement), and
will cover any
3.13.2.1 This section shall apply only deficit in that
upon commencement of System Operator’s
the transmission rights settlements position
market established under with the spot
clause 3.12.1. market under clause
3.13.15.1 (b) arising
3.13.2.2 Trading Participants as a result of honoring
who hold transmission this transmission
rights and wish to have right.
those transmission
rights accounted for in 3.13.2.3 Data for Bilateral Contracts
settlements shall, after and Transmission Rights
each trading day, in
accordance with the The Market Operator
timetable, submit to shall:
the Market Operator a
schedule specifying: (a) Inform the Trading
Participants which
(a) The sending node submitted data under
and receiving node clause 3.13, if any of
between which each the data provided is
transmission right invalid or incomplete;
applies; and
(b) The MWH quantities (b) If the data provided

of each transmission under clause 3.13 is
right in each trading valid or complete,
interval of that employ that data for
trading day, as they settlements purposes
apply at the sending in accordance with
node; clauses 3.13.7 and
3.13.13.
(c) The agreed
loss differential 3.13.4 Zonal Reserve Settlement Quantity
associated with each
transmission right, if The zonal reserve settlement
any, as a proportion of quantity for each Trading
the quantity specified Participant in each trading interval
in clause 3.13.2 (b); shall be calculated as:
and
(a) The aggregate, across all of the
(d) That the System Trading Participant’s facilities
Operator is in in the relevant reserve
agreement with the region, of the reserve target
submission made determined by the dispatch
under clause 3.13.2 optimization performed
(and providing prior to the beginning of that
trading interval, in accordance node assumed in,
with clause 3.8.1; multiplied or estimated by, the
by dispatch optimization
performed prior to
(b) The reserve effectiveness the beginning of
factor for that reserve facility that trading interval,
category to be determined by both adjusted for
the System Operator. bilateral contracts
in accordance with
3.13.5 Defining the Gross Ex-Ante Energy clause 3.13.7;
Settlement Quantity for Market
Trading Nodes (b) If the market trading
node is defined
3.13.5.1 For each trading interval, under clause 3.2.2.2
the gross ex-ante energy as a generator node
settlement quantity for lying on the interface
each market trading node between networks,
shall be determined by apparatus or
the Market Operator as equipment operated
follows: by parties other than
(a) If the market trading the gross ex-ante
node is defined under energy settlement
clause 3.2.2.1 as lying quantity for the
on the boundary of market trading node
the power system is the average of
operated by the the net expected
System Operator, flows through the
the gross ex-ante associated meter
energy settlement from the Generating
quantity for that Company to the
market trading node Customer side of the
is the average of meter, as estimated
the net expected by the initial
flows into the power conditions assumed
system operated for the beginning of
by the System that trading interval,
Operator through and by the target
the associated meter, generation for the
as estimated by the end of that trading
initial conditions interval for that
assumed for the generator node,
beginning of the both adjusted for
trading interval, bilateral contracts
and by the forecast, in accordance with
or target, for the clause 3.13.7; and
end of that trading
interval for that (c) If the market trading
market trading node is defined
under clause 3.2.2.2
as a customer node ex-post energy settlement
lying on the interface quantity for the market trading
between networks, node is the net metered flows
apparatus or through the associated meter
equipment operated from the Generation Company
by parties other than to the Customer side of the
the System Operator, meter adjusted for bilateral
the gross ex-ante contracts in accordance with
energy settlement clause 3.13.7; and
quantity for that
market trading node (c) If the market trading node is
is the negative of the defined under clause 3.2.2.2 as
amount determined a customer node lying on the
for the corresponding interface between networks,
generator node in apparatus or equipment
clause 3.13.5.1(b). operated by parties other than
the System Operator the gross
3.13.6 Defining the Gross Ex-Post Energy ex-post energy settlement
Settlement Quantity for Market quantity for the market
Trading Nodes trading node is the negative
of the amount determined for
For each trading interval, the gross the corresponding generator
ex-post energy settlement quantity node in clause 3.13.6.1(b).
for each market trading node shall
be determined by the Market 3.13.7 Energy Settlement Quantity
Operator as follows: Adjustments for Bilaterals
(a) If the market trading node is For settlement purposes, the ex-
defined under clause 3.2.2.1 ante energy settlement quantity
as lying on the boundary of and the ex-post energy settlement
the power system operated quantity for any market trading
by the System Operator, node in any trading interval shall
the gross ex-post energy be determined by the Market
settlement quantity for the Operator by adjusting the gross-
market trading node is the ex-ante energy settlement quantity
net metered flow into the or gross ex-post energy settlement
power system operated by the quantity, as appropriate, for that
System Operator through the market trading node and any
associated meter, adjusted trading interval, as measured in
for bilateral contracts in accordance with clause 3.13.5
accordance with clause 3.13.7; or estimated in accordance with
clause 3.13.6, for bilateral contract
(b) If the market trading node is quantities notified to the Market
defined under clause 3.2.2.2 as Operator under clause 3.13.1.1, or
a generator node lying on the inferred by the Market Operator
interface between networks, under clause 3.13.1.1 and accepted
apparatus or equipment as valid under clause 3.13.1.2 by:
operated by parties other than
the System Operator the gross (a) Subtracting all bilateral
sell quantities notified for
that node in that trading the ex-ante energy settlement
interval from the measured quantity for that node in that
or estimated gross energy trading interval (in MWh).
settlement quantity for that
node in that trading interval; 3.13.10 Determining the Reserve Trading
and Amount
(b) Adding all bilateral buy 3.13.10.1 For settlement purposes,

quantities inferred for that the reserve trading
node in that trading interval amount for each Trading
to the measured or estimated Participant who supplies
gross energy settlement reserve to a particular
quantity for that node in that reserve region in a
trading interval. trading interval will be
determined as the zonal
3.13.8 Determining the Ex Ante Energy reserve price for that
Trading Amount reserve region in that
trading interval multiplied
For settlement purposes, the ex- by the zonal reserve
ante energy trading amount for settlement quantity for
each market trading node and that Trading Participant
trading interval will be determined in that reserve regio n for
as the ex-ante energy settlement that trading interval.
price for that node in that trading
interval multiplied by the ex-ante 3.13.10.2 During the initial operation
energy settlement quantity (in of the interim WESM, the
MWh) for that node in that trading reserve trading amount
interval. shall be calculated based
on the cost of reserves
3.13.9 Determining the Ex Post Energy contracted for by the
Trading Amount System Operator.
For settlement purposes, the ex 3.13.11Determining the Reserve Cost

post energy trading amount for Recovery Charge
each market trading node and
trading interval will be determined The reserve cost recovery charge
as: for settlement purposes will be
determined for each Trading
(a) The ex-post energy settlement Participant in each trading interval
price for that node in that in accordance with the procedures
trading interval multiplied by developed under clause 3.3.5.
the ex-post energy settlement
quantity for that node in that 3.13.12Calculation of Line Rental Trading
trading interval (in MWh); Amounts
minus
(b) The ex-post energy settlement calculate the line rental trading
price for that node in that amounts for each transmission line
trading interval multiplied by in the market network model as:

(a) The expected flow of energy by the agreed loss differential
out of the receiving node of for that transmission right, as
the market network line as notified under clause 3.13.2,
determined by the market multiplied by the ex ante
dispatch optimization model energy settlement price at the
by the ex-ante nodal energy receiving node in that trading
settlement price at that node; interval.
less
3.13.14Settlement Amounts for Trading
(b) The expected flow of energy Participants
into the sending node
multiplied by the ex-ante nodal 3.13.14.1 For each billing period,
energy settlement price at that the Market Operator shall
node of the market network determine the settlement
line as determined by the amount for each Trading
market dispatch optimization Participant as the sum
model. of the aggregate trading
amounts for the trading
3.13.13 Determining the Transmission intervals in that billing
Rights Trading Amount period, determined in
accordance with clause
For settlement purposes, the 3.13.14.2:
transmission right trading amount
for each transmission right in each (a) Any amount payable
trading interval is to be determined by the Market
as: Operator to that
Trading Participant
(a) The MWh capacity of that in respect of that
transmission right in that billing period and
trading interval as notified not accounted for
under clause 3.13.2, in clause 3.13.14.2,
multiplied by the ex ante including payment
energy settlement price for the for any ancillary
receiving node in that trading services purchased on
interval; minus the sum of behalf of the System
Operator; less the
(b) The MWh capacity of that sum of
transmission right , in
that trading interval, as (b) Any market fees
notified under clause 3.13.2, which that Trading
multiplied by the ex ante Participant is required
energy settlement price at the to pay in respect of
sending node in that trading that billing period
interval; plus as determined in
accordance with
(c) The MWh capacity of that clause 2.10; plus
transmission right in that
trading interval, as notified (c) Any other amounts
under clause 3.13.2, multiplied payable by that

Trading Participant will always be positive
to the Market for both Generation
Operator in respect Companies and
of that billing period, Customers); plus
including any ancillary
services cost recovery (d) The transmission
charges. right trading
amounts for each
3.13.14.2
The aggregate trading transmission right
amount for a Trading held by the WESM
Participant for a trading Participant calculated
interval equals the sum of: in accordance with
clause 3.13.13
(a) The ex-ante energy (which will typically
trading amounts for be positive for any
each market trading Trading Participant);
node for which that less the sum of
Trading Participant is
responsible calculated (e) The reserve cost
in accordance recovery charge
with clause 3.13.8 determined for that
(which will typically Trading Participant
be positive for a with respect to any
Generation Company reserve cost recovery
and negative for a zone within which
Customer); plus it has any facility
connected calculated
(b) The ex-post energy in accordance with
trading amounts for the procedures
each market trading developed under
node for which that clause 3.3.5 (which
Trading Participant is will be positive for any
responsible calculated Trading Participant);
in accordance with and
clause 3.13.9 (which
may be positive or (f) Any other ancillary
negative for any service cost recovery
Trading Participant); charges determined
plus for that Trading
Participant in
(c) The reserve trading accordance with
amounts for each the procedures
reserve region developed under
into which that clause 3.3.5 (which
Trading Participant will be positive for any
contributes reserve Trading Participant).
calculated in
accordance with 3.13.15Settlement Amounts for the
clause 3.13.10 (which Network Service Provider

3.13.15.1 For each billing period, or paid to the System
the Market Operator shall Operator, according
determine the settlement to a formula to be
amount for the Network developed by the
Service Provider as the Market Operator
sum over all trading subject to approval of
intervals in that billing the PEM Board; and
period of:
(b)
Shall be clearly
a) The line rental trading accounted for and
amounts calculated taken into account
for each transmission when setting the
line owned by allowable charges
the TRANSCO in under any regulatory
accordance with instruments applying
clause 3.13.12 (which to the Market
will typically be Operator and the
positive); minus the System Operator.
sum of
3.13.16.3 The Market Operator
b) The transmission shall:
right trading amounts
for each transmission (a) Publish regular
right for which the summary reports on
System Operator has the amount of any
agreed to support net settlement surplus
in accordance being generated;
with clause 3.13.2
calculated in (b)
Within one year
accordance with from spot market
clause 3.13.13 (which commencement
will typically be date, and every year
positive). thereafter, publish
a review of the
3.13.16Treatment of Remaining underlying factors
Settlement Surplus giving rise to any net
settlement surplus,
3.13.16.1 If the transactions required and attempt to
by clauses 3.13.14 and identify any binding
3.13.15, in aggregate, constraints which
result in a surplus or may have caused
deficit remaining, this or contributed to
will be known as the net such net settlement
settlement surplus. surplus; and
3.13.16.2 The net settlement (c) Determine, in

surplus: consultation with
Trading Participants
(a) May be retained by and Network Service
the Market Operator,
Providers, and subject settlement of transactions
to approval by the and the payment of
PEM Board, whether market fees.
the net settlement
surplus generated 3.14.3 Payment of Settlement Amount
by any particular set
of constraints is of 3.14.3.1 Where the settlement
such magnitude as to amount for a WESM
justify development Member is a negative
of a regime similar amount, the WESM
to that implemented Member shall pay that
in the WESM amount to Market
Rules with respect Operator in accordance
to transmission with clause 3.14.6.
line rentals and
transmission rights. 3.14.3.2 Where the settlement
amount for a WESM
3.14 SETTLEMENT PROCESS Member is a positive
amount, Market Operator
3.14.1 Settlements Management by shall pay that amount to
Market Operator the WESM Member in
The Market Operator shall 3.14.7.
determine the settlement amount
payable by WESM Members and 3.14.4 Preliminary Statements
facilitate the billing and settlement
of transactions between itself and 3.14.4.1 Within 7 business days
the WESM Members under the after the end of each
WESM Rules in accordance with billing period, the Market
this clause 3.14. Operator shall give each
WESM Member who
3.14.2 Electronic Funds Transfer has engaged in market
transactions in that billing
3.14.2.1 The Market Operator shall period a preliminary
ensure that an EFT facility statement which sets out
is provided and made the market transactions
available for all WESM of that WESM Member
Members for the purposes in that billing period and
of facilitating settlements the settlement amount
and the collection and payable by or to that
payment of all market WESM Member.
fees.
3.14.4.2 The statements issued
3.14.2.2 Unless otherwise under this clause 3.14.4
authorized by the Market shall include supporting
Operator, all WESM data for all amounts
Members shall use the EFT payable sufficient to
facility provided by the enable each WESM
Market Operator under Member to audit the
clause 3.14.2.1 for the calculation of the amount
payable by or to that Member who has engaged
WESM Member. in market transactions
in that billing period a
3.14.4.3 If the WESM Member final statement stating
reasonably believes the amounts payable by
there was an error the WESM Member to
or discrepancy in the the Market Operator or
preliminary statement payable by the Market
given to the WESM Operator to the WESM
Member by the Market Member in respect of the
Operator under this relevant billing period.
clause 3.14.4, the WESM
Member shall notify the 3.14.5.2 The statements issued
Market Operator as soon under this clause 3.14.5
as practicable of that shall include supporting
error or discrepancy and data for all amounts
the Market Operator shall payable which shall be
review the preliminary sufficient to enable each
statement. WESM Member to audit
the calculation of the
3.14.4.4 If the Market Operator amount payable by or to
considers that a that WESM Member.
preliminary statement
contains an error or 3.14.6 Payment by Trading Participants
discrepancy after
reviewing the preliminary No later than 3.00 pm on the
statement under clause thirtieth business day after the
3.14.4.3, the Market end of a billing period or 3.00 pm
Operator shall notify all on the twelfth business day after
WESM Members whose receiving a final statement under
final statements will be clause 3.14.5, whichever is the
affected by the error or later, each WESM Member shall pay
discrepancy within 7 days to the Market Operator in cleared
of the date on which the funds the settlement amount (if
error or discrepancy first any) stated to be payable to the
came to the attention of Market Operator by that WESM
the Market Operator and Member in that WESM Member’s
the Market Operator shall final statement, whether or not
ensure that the error or the WESM Member disputes, or
discrepancy is corrected continues to dispute, the amount
in the relevant final payable.
statements.
3.14.7 Payment to Trading Participants
3.14.5 Final Statements
By no later than 3.00 pm on the
3.14.5.1 No later than eighteen day on which the Market Operator
business days after the is to be paid under clause 3.14.6,
end of each billing period, the Market Operator shall pay to
the Market Operator each WESM Member in cleared
shall give to each WESM funds the settlement amount (if
any) stated to be payable to that (a) Has been the subject
WESM Member in that WESM of a dispute and the
Member’s final statement. dispute has been
resolved in any way
3.14.8 Disputes which causes the
amount payable
3.14.8.1 If a dispute arises between to differ from the
a WESM Member and amount payable as
the Market Operator set out in the final
concerning either: statement; or
(a) The settlement (b) Has been identified

amount stated in as being in error in
any preliminary accordance with
statement provided clause 3.14.9.2 and
under clause 3.14.4 the correct amount
to be payable by or to has been determined
it; or by the Market
Operator,
(b) The supporting data,
(c) The Market Operator
they shall each use shall issue to each
reasonable endeavors to WESM Member
resolve the dispute within affected by the
fifteen business days after resolution of the
the end of the relevant dispute or the
billing period. correction of the error
a revised statement
3.14.8.2Disputes in respect of for the relevant billing
final statements or the period setting out:
supporting data provided
with them in accordance (d) The amount payable
with clause 3.14.5 shall by the WESM
be raised within twelve Member to the
months of the relevant Market Operator or
billing period. the amount payable
by the Market
3.14.8.3 Disputes raised under Operator to the
this clause 3.14.8 shall be WESM Member; and
resolved by agreement or
pursuant to the dispute (e) The adjustment to
resolution procedures set the final statement as
out in clause 7.3. agreed or determined
plus interest
3.14.9 Settlement Revisions calculated on a daily
basis at the interest
3.14.9.1 If an amount in a final rate for the period
statement issued under from the payment
clause 3.14.5: date applicable to
the final statement to
which the adjustment statement issued to it
relates to the payment under clause 3.14.9.
date applicable to the
revised statement 3.14.10.3 On the day on which
issued under this the Market Operator is
clause 3.14.9.1. to be paid under clause
3.14.10.2, the Market
3.14.9.2 If the Market Operator Operator shall pay to each
becomes aware of an WESM Member in cleared
error in an amount stated funds the net amount (if
in a final statement issued any) stated to be payable
under clause 3.14.5 and, to that WESM Member
in the Market Operator’s in the revised statement
reasonable opinion, a issued to it under clause
WESM Member would 3.14.9.
be materially affected
if a revision to the final 3.14.11 Payment Default Procedure
statement was not made
to correct the error, then 3.14.11.1 Each of the following
the Market Operator shall events is a default event
issue revised statements in relation to a WESM
for the relevant billing Member:
period in accordance with
clause 3.14.9.1. (a) The WESM Member
does not pay any
3.14.10 Payment of Adjustments money due for
payment by it under
3.14.10.1 The Market Operator the WESM Rules by
shall specify the time and the appointed time
date on which a payment on the due date;
of an adjustment under a
revised statement issued (b) The Market Operator
under clause 3.14.9 is does not receive
due, which date shall be payment in full of any
not less than ten business amount claimed by
days and not more than the Market Operator
fifteen business days after under any credit
the issue of that revised support in respect
statement. of a WESM Member,
within ninety minutes
3.14.10.2 By no later than the time after the due time
and date specified by the for payment of that
Market Operator pursuant claim;
to clause 3.14.10.1, each
WESM Member shall pay (c) The WESM Member
to the Market Operator fails to provide credit
in cleared funds the net support required to
amount (if any) stated to be supplied under the
be payable by that WESM WESM Rules by the
Member in the revised appointed time on
the due date; WESM Member
ceases or is likely
(d) It is or becomes to cease to carry
unlawful for the on its business or a
WESM Member to substantial part of its
comply with any of business;
its obligations under
the WESM Rules or (h) The WESM Member
any other obligation or a Credit Support
owed to the Market Provider which has
Operator or it is provided credit
claimed to be so by support for that
the WESM Member; WESM Member
enters into or takes
(e) It is or becomes any action to enter
unlawful for any into an arrangement
Credit Support (including a scheme
Provider in relation to of arrangement),
the WESM Member composition or
to comply with any of compromise with,
its obligations under or assignment for
the WESM Rules or the benefit of, all
any other obligation or any class of their
owed to the Market respective creditors
Operator or it is or members, or a
claimed to be so by moratorium involving
that Credit Support any of them;
Provider;
(i) The WESM Member
(f) An authorization or a Credit Support
from a government Provider which has
authority necessary provided credit
to enable the WESM support for that
Member or a Credit WESM Member states
Support Provider that it is unable to pay
which has provided from its own money
credit support for its debts as and when
that WESM Member they fall due for
to carry on their payment;
respective principal
businesses or (j) A receiver or receiver
activities ceases to and manager is
have full force and appointed in respect
effect; of any property of
the WESM Member
(g) The WESM Member or a Credit Support
or a Credit Support Provider which has
Provider which has provided credit
provided credit support for that
support for that WESM Member;
(k) An administrator, taken to be insolvent
provisional liquidator, or unable to pay
liquidator, trustee in its debts under any
bankruptcy or person applicable legislation.
having a similar or
analogous function 3.14.11.2 Where a default event
is appointed in has occurred in relation
respect of the WESM to a WESM Member, the
Member or a Credit Market Operator may:
Support Provider
which has provided (a) Issue a default notice
credit support for which specifies:
that WESM Member,
or any action is taken (1) The nature of the
to appoint any such alleged default;
person; and
(l) An application or (2) If the Market

order is made for O p e r a t o r
the winding up or considers that
dissolution or a the default
resolution is passed is capable of
or any steps are taken remedy, that the
to pass a resolution WESM Member
for the winding up shall remedy the
or dissolution of default within 24
the WESM Member hours of the issue
or a Credit Support of the default
Provider which has notice; and/or
provided credit
support for that (b) Immediately issue
WESM Member; a suspension notice
in accordance with
(m) The WESM Member clause 3.15.7 if the
or a Credit Support Market Operator
Provider which has considers that the
provided credit default is not capable
support for that of remedy and that
WESM Member failure to issue a
dies or is dissolved suspension notice
unless such notice would be likely to
of dissolution is expose other WESM
discharged; and Members to greater
risk; and/or
(n) The WESM Member
or a Credit Support (c) If it has not already
Provider which has done so, make a
provided credit claim upon any
support for that credit support held in
WESM Member is respect of the WESM
Member for such 3.14.12 Interest on Overdue Amounts
amount as the Market
Operator determines If a Trading Participant fails to
represents the pay any amount due and payable
amount of any by it under the WESM Rules, such
money actually or overdue amount shall bear the
contingently owing by default interest rate reckoned from
the WESM Member to the first day such amount is due
the Market Operator and payable, up to and including
pursuant to the the date on which payment is
WESM Rules. made, with interest computed
based on a 360-day year.
3.14.11.3 If:
3.15 PRUDENTIAL REQUIREMENTS
(a) The Market Operator
considers that a 3.15.1 Purpose
default event is not
capable of remedy; or The purpose of the prudential
requirements is to ensure the
(b) A default event is not effective operation of the spot
remedied within 24 market by providing a level of
hours of the issue of comfort that WESM Members will
the default notice or meet their obligations to make
any later deadline payments as required under the
agreed to in writing by WESM Rules.
the Market Operator;
or 3.15.2 Provision of Security
(c) The Market Operator 3.15.2.1 Subject to clause 3.15.2.2,

receives notice from a Trading Participant
the defaulting WESM wishing to participate in
Member that it is not market transactions shall
likely to remedy the provide and maintain a
default specified in security complying with
the default notice. the requirements of this
clause 3.15.2.
then the Market Operator
may issue a suspension 3.15.2.2 The Market Operator may
notice in accordance with exempt WESM Members
clause 3.15.7 under which from the requirement to
the Market Operator provide a security under
notifies the defaulting clause 3.15.2.1, if:
WESM Member that
it is prohibited from (a) the Market Operator
participating in the spot believes it is likely
market. that the amount
payable by the
Market Operator to
that WESM Member

under the WESM shall be either:
Rules will consistently
exceed the amount (a) A bank guarantee in a form
payable to the and from a bank acceptable to
Market Operator by the Market Operator; or
that WESM Member
under the WESM (b) Another immediate,
Rules in respect of irrevocable and unconditional
that period; or commitment in a form
and from a bank or other
(b) the Market Operator institution acceptable to the
believes it is unlikely Market Operator; or
that the WESM
Member will be (c) Surety Bond issued by a surety
required to pay any or insurance company duly
amounts to the accredited by the Office of the
Market Operator; or Insurance Commissioner of
the Philippines.
(c) the Trading
Participant is a 3.15.4 Amount of Security
Distribution Utility
that demonstrates the 3.15.4.1 Subject to clause 3.15.2.2,
financial capability prior to the end of
by complying with each financial year the
agreed upon financial Market Operator shall
covenants and that determine and provide
such exemption written confirmation to
is subject to the each WESM Member of
approval of the PEM its maximum exposure to
Board. the Market Operator in
respect of a billing period
3.15.2.3 If, under clause 3.15.2.2, in the following financial
the Market Operator year.
has exempted a WESM
Member from the 3.15.4.2 The Market Operator may
requirement to provide review its determination
a security under clause of a WESM Member’s
3.15.2.1, then the Market maximum exposure at
Operator may vary or any time, provided that
cancel the exemption at any change to a WESM
any time by giving written Member’s maximum
notice of the variation exposure will apply no
or cancellation of the earlier than thirty days
exemption to the WESM following notification by
Member. the Market Operator to
that WESM Member of
3.15.3 Form of Security that change or such earlier
period agreed by the PEM
The security provided by a WESM Board.
Member under this clause 3.15
3.15.4.3 Each WESM Member shall (c) Then the WESM
ensure that at all times the Member shall deliver
aggregate undrawn and to the Market
unclaimed amounts of Operator, at least
current and valid security ten business days
held by the Market prior to the time at
Operator in respect of which that existing
that WESM Member is security is due to
not less than that WESM expire or terminate, a
Member’s maximum replacement security
exposure. which:
3.15.4.4 To diminish the possibility (1) Is of sufficient

of incurring a margin call value to enable
under clause 3.15.10, a the WESM
WESM Member may in Member to
its absolute discretion comply with
provide to the Market clause 3.15.4.3;
Operator a security or
securities in accordance (2) Complies with
with clause 3.15.3 for an the requirements
aggregate amount which of this clause
exceeds its maximum 3.15; and
exposure.
(3) Will take effect
3.15.5 Replacement Security no later than the
date on which the
3.15.5.1 If: existing security
is due to expire or
(a) An existing security terminate.
provided by a WESM
Member under this 3.15.5.2 If:
clause 3.15 is due to
expire or terminate; (a) A WESM Member fails
and to comply with clause
3.15.5.1; and
(b) After that security
expires or terminates, (b) That WESM Member
the maximum amount does not remedy that
which the Market failure within 24 hours
Operator will be after being notified by
entitled to be paid in the Market Operator
aggregate under any of the failure,
remaining security or
securities provided by then the Market Operator
the WESM Member shall give the WESM
under this clause Member a suspension
3.15 will be less than notice in accordance with
WESM Member’s clause 3.15.7.
maximum exposure,
3.15.6 Drawdown of Security 3.15.7.1 As soon as practicable
after a suspension notice
3.15.6.1 If the Market Operator is issued by the Market
exercises its rights in Operator under the
accordance with this WESM Rules, the Market
clause 3.15 under a Operator shall:
security provided by a
WESM Member under (a) Publish the
this clause 3.15, then the suspension notice;
Market Operator shall and
notify the WESM Member.
(b) Place a notice in a
3.15.6.2 If, as a result of the Market newspaper of general
Operator exercising its circulation that the
rights under a security WESM Member has
provided by a WESM been suspended.
Member under this clause
3.15, the maximum 3.15.7.2 The Market Operator shall
amount which the Market revoke a suspension notice
Operator is entitled to be if:
paid under the security
or securities provided (a) In the case of a default
by the WESM Member event, the default
under this clause 3.15 event is remedied; or
is less than the WESM
Member’s maximum (b) In the case of a
exposure, then, within 24 failure to maintain
hours of receiving a notice c o m p l i a n c e
under clause 3.15.6.1, with prudential
the WESM Member shall requirements under
provide an additional this clause 3.15,
security to ensure that at that failure has been
all times, it complies with remedied; and
the requirements of this
clause 3.15. (c) There are no other
circumstances in
3.15.6.3 If a WESM Member fails existence which
to comply with clause would entitle the
3.15.6.2 within the time Market Operator to
period referred to in issue a suspension
that clause, then the notice,
Market Operator shall
give the WESM Member except that the Market
a suspension notice in Operator shall not revoke
accordance with clause a suspension notice more
3.15.7. than one month after it
was issued.
3.15.7 Suspension of a WESM Member

3.15.7.3 If a suspension notice due to a failure by
is revoked, the Market the WESM Member
Operator shall publicize to continue to satisfy
that fact in the same the prudential
manner in which the requirements and in
suspension notice was the Market Operator’s
publicized in accordance reasonable opinion
with clause 3.15.7.1. the WESM Member is
incapable of rectifying
3.15.7.4 From the time that the that failure for any
Market Operator issues reason,
a suspension notice
to a WESM Member the Market Operator shall
under the WESM Rules, deregister that WESM
the WESM Member is Member as soon as
ineligible to participate practicable and promptly
in the spot market, until publish a notice of that
such time as the Market fact.
Operator notifies the
WESM Member and all 3.15.8 Trading Limits
other relevant Trading
Participants that the 3.15.8.1 Subject to clause 3.15.8.2,
suspension notice has the Market Operator shall
been revoked. set a trading limit for
each WESM Member who
3.15.7.5 A WESM Member shall participates in market
comply with a suspension transactions.
notice issued to it under
the WESM Rules. 3.15.8.2 If, under clause 3.15.2.2,
the Market Operator
3.15.7.6 If: has exempted a Trading
Participant from the
(a) The Market Operator requirement to provide
has issued a a security under clause
suspension notice 3.15.2.1 for a period, then
to a WESM Member the Market Operator shall
due to a default not set a trading limit for
event and in the that WESM Member for
Market Operator’s the period during which
reasonable opinion that exemption applies.
the WESM Member is
incapable of rectifying 3.15.8.3 The trading limit for a
the default event for WESM Member at any
any reason; or time shall not be greater
than 85% of the total value
(b) The Market Operator of the security provided
has issued a by the WESM Member
suspension notice to the Market Operator
to a WESM Member under clauses 3.15.3 (a),
(b) and (c).
3.15.9 Monitoring (1) Actual market
prices or, if actual
3.15.9.1 Each day, the Market market prices are
Operator shall review its not available for
actual exposure to each all or part of a
WESM Member in respect trading day, the
of previous billing periods market prices
under the WESM Rules. forecast for the
relevant trading
3.15.9.2 In calculating the Market day as specified in
Operator’s actual the relevant day
exposure to a WESM ahead projection;
Member under clause and
3.15.9.1, the period
between the start of the (2) Actual metered
billing period in which quantities for
the review occurs and the the WESM
start of the trading day Member or, if
immediately following the actual metered
day on which the review quantities are not
occurs is to be treated as a available for a
previous billing period. trading interval,
then a trading
3.15.9.3 In calculating the Market imbalance for
Operator’s actual that trading
exposure to a WESM i n t e r v a l
Member under clause determined
3.15.9.1, the Market by the Market
Operator shall take into Operator as
account: the average
of the trading
(a) O u t s t a n d i n g imbalances
settlement amounts of that WESM
for the WESM Member for the
Member in respect c o r re s p o n d i n g
of previous billing t r a d i n g
periods; and interval on the
c o r re s p o n d i n g
(b) Settlement amounts trading days of
for the WESM the four previous
Member for trading weeks.
intervals from the
start of the billing 3.15.9.4 If the Market Operator
period in which the calculates that its actual
review occurs to the exposure to a WESM
end of the trading day Member exceeds the
on which the review WESM Member’s trading
occurs based on: limit, then the Market
Operator shall notify
the WESM Member
accordingly. Operator’s actual
exposure to the
3.15.10 Margin Calls WESM Member to
below the WESM
3.15.10.1 If the Market Operator Member’s trading
calculates that its limit.
exposure to a WESM
Member exceeds the 3.15.10.3 The period within which
WESM Member’s trading a margin call must be
limit, then the Market satisfied under clause
Operator shall make a 3.15.10.2 is:
margin call on that WESM
Member by notice to the (a) If the margin call is
WESM Member. made on a business
day before 10:00
3.15.10.2 If the Market Operator am, then the period
makes a margin call on commences at the
a WESM Member under time the margin call
clause 3.15.10.1, then is made and finishes
the WESM Member at 3:00 pm on that
must satisfy the margin business day; and
call within the period
determined in accordance (b) If clause 3.15.10.3
with clause 3.15.10.3 by (a) does not apply,
either: then the period
commences when the
(a)
Providing to the margin call is made
Market Operator and ends at 10:00 am
an additional on the first business
security or securities day to occur after the
complying with the margin call is made.
requirements of this
clause 3.15 which 3.15.10.4 For the purposes of
enables the Market the WESM Rules, a
Operator to increase prepayment under clause
the WESM Member’s 3.15.10.2(b) is taken
trading limit to a level to relate to the earliest
which exceeds the billing period in respect
Market Operator’s of which the relevant
actual exposure to WESM Member owes
the WESM Member; the Market Operator an
or amount of money under
the WESM Rules and, if
(b) Prepaying a portion of the amount the WESM
the amount payable Member owes under the
or which will become WESM Rules in respect of
payable in respect that billing period is less
of previous billing than the amount of the
periods sufficient to prepayment, then the
reduce the Market excess is taken to relate
to the billing periods (f) Manner in which new technologies
occurring immediately are to be adopted.
after the earliest billing
period in respect of 4.2 APPLICATION OF CHAPTER
which the relevant WESM
Member owes the Market This chapter 4 applies to:
Operator an amount of
money under the WESM (a) A Customer in respect of any
Rules in chronological connection point through which it
order until there is no purchases electricity from the spot
excess. market;
3.15.10.5 If a WESM Member fails (b) A Generation Company in respect of

to satisfy a margin call by a connection point through which it
providing an additional sells electricity to the spot market;
security or making a
prepayment under clause (c) Metering Services Providers in
3.15.10.2 within the time respect of metering installations for
referred to in that clause, which they are responsible; and
then the Market Operator
shall give the WESM (d) All WESM members as far
Member a suspension as applicable.
notice.
4.3 OBLIGATIONS OF TRADING
3.15.11 Confidentiality PARTICIPANTS
All information provided by a 4.3.1 Obligations

WESM Member in relation to its
financial circumstances shall be 4.3.1.1 Before a Trading
treated by the Market Operator Participant who is a Direct
as confidential information in WESM Member will be
accordance with clause 5.2. permitted by the Market
Operator to participate in
CHAPTER 4 the spot market in respect
METERING of a connection point, the
Trading Participant shall
4.1 SCOPE OF CHAPTER 4 ensure that:
This chapter 4 sets out the: (a) Each of its connection

points has a metering
(a) Obligations of Trading Participants; installation;
(b) Requirements in relation to the (b) Each metering
installation, use and security of installation has
meters; been installed in
(c) Manner in which metering data is to accordance with
be used and managed; this chapter 4 and
(d) Method of deregistration of Metering in accordance with
Services Providers; the Grid Code and
(e) Manner in which metering databases Distribution Code;
are to be managed; and and
(c) Each metering Provider(s) which
installation is includes the terms
registered with the and conditions for the
Market Operator. provision, installation
and maintenance of
4.3.1.2 The Market Operator the relevant metering
may refuse to permit a installation by the
Trading Participant who Metering Services
is a Direct WESM Member Provider; and
to participate in the spot
market in respect of any (c) Provide the Market
connection point if the Operator with the
metering installation relevant details of the
at that connection metering installation
point does not comply in accordance with
with the provisions or Appendix B2 within
requirements of this 10 business days
chapter 4, the Grid Code of entering into an
and Distribution Code. agreement with the
Metering Services
4.3.1.3 The Market Operator shall Provider(s) under
promptly advise the ERC clause 4.3.4(b).
of any refusal made under
clause 4.3.1.2. 4.3.3
Metering Services Provider
Obligations
4.3.2 Election of a Metering Services
Provider by a Trading Participant The Metering Services Provider
shall:
4.3.2.1 A Trading Participant who
is a Direct WESM Member (a) Ensure that its metering
shall: installations are provided,
installed, tested, calibrated
(a) Elect a Metering and maintained in accordance
Services Provider with this chapter 4, the Grid
who will have Code and Distribution Code
responsibility for and all applicable laws, rules
arranging for the and regulations;
provision, installation,
testing, calibration (b) Ensure that the accuracy
and maintenance of each of its metering
of each metering installations complies with the
installation for requirements of chapter 4 and
which that Trading the Grid Code and Distribution
P a r t i c i p a n t Code; and
is financially
responsible; (c) If the Market Operator
requires, arrange for
(b)
Enter into an the provision of remote
agreement with the monitoring facilities to alert
Metering Services the Market Operator of any
failure of any components (a) Be accurate in accordance
of the metering installation with this chapter 4 and the
which might affect the Grid Code and Distribution
accuracy of the metering data Code;
derived from that metering
installation. (b) Have facilities to enable
metering data to be
4.4 REGISTRATION OF METERING SERVICES transmitted from the metering
PROVIDERS installation to the metering
database, and be capable
4.4.1 Other than the TRANSCO, a of communication with the
Metering Services Provider is a metering database; This
person or an entity who: requirement may be relaxed
during the operation of the
(a) Is authorized by the ERC to interim WESM.
provide metering services;
(c) Contain a device which has
(b) Is registered with the Market a visible or an equivalently
Operator as a Metering accessible display of metering
Services Provider; and data or which allows the
metering data to be accessed
(c) Is required to have the and read at the same time
qualifications and adhere to by portable computer or
any performance standards other equipment of a type
specified by the Market or specification reasonably
Operator in relation to acceptable to all entities who
Metering Services Providers. are entitled to have access to
that metering data;
4.4.2 Subject to clause 4.3.3.3, a
Generation Company or Customer (d) Be secure;
which is involved in the trading of
energy shall not be registered as (e) Have electronic data recording
a Metering Services Provider for facilities such that all metering
any connection point in respect of data can be measured and
which the metering data relates to recorded in trading intervals;
its own use of energy.
(f) Be capable of separately
4.4.3 If a Trading Participant is a registering and recording
Customer and also a Network flows in each direction where
Service Provider, the Trading bi-directional active energy
Participant may register as a flows occur;
Metering Services Provider only for
connection points that it does not (g) Have a meter having an
own. internal or external data
logger capable of storing the
4.5 METERING INSTALLATION metering data for at least
60 days and have a back
4.5.1 Metering Installation Components up storage facility enabling
A metering installation shall: metering data to be stored

for 48 hours in the event of 4.5.4 Use of Meters
external power failure; and
4.5.4.1 The registered metering
(h) Have an active energy meter, installation shall be used
and if required in accordance by the Market Operator
with the Grid Code and as the primary source of
Distribution Code, a reactive metering data for billing
energy meter, having both purposes.
an internal or external data
logger. 4.5.4.2 Notwithstanding any other
provision of this clause
4.5.2 Location of Metering Point 4.4, the Market Operator
will not be liable to any
4.5.2.1 The Metering Services person or entity in respect
Provider shall ensure of any inaccuracies,
that the metering point discrepancies or other
is located as close defects in metering
as practicable to the data, including metering
connection point. data which is stored in
the metering database
4.5.2.2 The Trading Participant, provided that these do
the Network Service not arise from the gross
Provider and the Market negligence or wilful
Operator shall use their misconduct of the Market
best endeavors to agree Operator.
to adjust the metering
data that is recorded in 4.5.4.3 Where a metering
the metering database to installation is used for
allow for physical losses purposes in addition to
between the metering the provision of metering
point and the relevant data to the Market
connection point. Operator then:
4.5.2.3 The metering installation (a) That use shall not be

shall be accessible to the inconsistent with,
Metering Service Provider or cause any WESM
at all times. Member to breach,
any requirements
4.5.3 Meter Accuracy of the WESM Rules,
the Grid Code and
The class of metering installation Distribution Code or
and the accuracy requirements any applicable laws;
for a metering point are to be and
determined by the PEM Board in
accordance with the Grid Code and (b) The Metering
Distribution Code and according Services Provider shall
to the annual amount of active coordinate with the
energy that passes through the entities that use the
metering point of that Trading metering installation
Participant. for such other
purposes to ensure 4.5.5.4 The PEM Auditor, in
that clause 4.4.4.3 (a) consultation with the
is complied with. Market Operator and
Metering Services
4.5.5 Security of Metering Equipment Providers, shall review
the security arrangements
4.5.5.1 The Metering Services and requirement of
Provider shall use metering installations
reasonable endeavors annually.
to protect the metering
installation from 4.5.6 Security of Metering Data Held in a
unauthorized interference Metering Installation
both intentional and
inadvertent by providing The Metering Services Provider
secure housing for shall ensure that metering data
metering equipment or held in a metering installation is
otherwise ensuring that protected from local or remote
security at the metering electronic access or manipulation
point is adequate to of data by the installation of
protect against such suitable security electronic access
interference. controls (including, if required by
the Market Operator, passwords).
4.5.5.2 If a WESM Member has
reason to believe that 4.5.7 Performance of Metering
the metering installation Installations
has been interfered with
or the accuracy thereof 4.5.7.1 The Metering Services
might have been affected Provider shall use all
by any tampering, he reasonable endeavors
shall inform the Metering to ensure that metering
Services Provider who data is capable of being
shall test the metering transmitted to the
installation to ensure that metering database from
the metering equipment its metering installations:
operates within the
applicable accuracy (a) Within the applicable
parameters described accuracy parameters
in the Grid Code and described in the Grid
Distribution Code. Code and Distribution
Code; and
4.5.5.3 If evidence of tampering
with a metering (b) Within the time
installation is found or required for
discovered by a WESM settlement, at a level
Member, all affected of availability of at
Participants shall be least 99% per annum,
notified of that fact by or as otherwise
that WESM Member and agreed between the
the PEM Board as soon as Market Operator and
reasonably possible. the Metering Services
Provider. 4.6.2 Data Transfer and Collection
4.5.7.2 If a metering installation 4.6.2.1 The Market Operator shall

malfunction or defect collect metering data from
occurs, the Metering all metering installations
Services Provider shall from which metering data
ensure that repairs shall is required for settlement
be made as soon as purposes unless
practicable and in any otherwise agreed by the
event within two business Market Operator and the
days, unless extended by affected Participants.
the Market Operator.
4.6.2.2 Each WESM Member
4.5.7.3 A WESM Participant who shall use its reasonable
becomes aware of a endeavors to ensure that
metering installation the Market Operator
malfunction or other is given access to, or
defect shall advise the is provided with, the
Market Operator within 3 metering data.
hours from the time it was
detected. 4.6.2.3 The Metering Services
Provider shall, at its own
4.5.8 Meter Time cost, ensure that metering
data derived from a
4.5.8.1 The Metering Services metering installation for
Provider shall ensure that which it is responsible
all metering installation shows the time and date
and data logger clocks are at which it is recorded
referenced to Philippines and is capable of being
Standard Time. transmitted from the
metering installation to
4.5.8.2 The metering database the metering database
time shall be set within in accordance with
an accuracy of plus or the Market Operator’s
minus five (5) seconds reasonable requirements.
of Philippines Standard
Time. 4.6.2.4 The Market Operator
may use data collection
4.6 METERING DATA systems to transfer
metering data to the
4.6.1 Changes to Metering Data metering databases.
The Metering Services Provider 4.6.2.5 Without prejudice to the

shall not make, cause or allow any generality of this clause
alteration to the original stored 4.5, the Metering Services
data in a metering installation. Provider shall ensure
It shall also use reasonable that each of its metering
endeavors to ensure that no other installations have
person or entity does the same. adequate communication

facility that will enable the Providers and WESM Participants
Market Operator to obtain whose meter data is incorrect
remote access to the beyond reasonable limits for
metering data from the whatever reason.
metering database. This
requirement, however, 4.7.3 Notice following material breach
may be relaxed during the of WESM Rules
initial operation of the
WESM. If a Metering Services Provider
materially breaches the WESM
4.6.2.6 In cases where the Rules, the Market Operator shall
metering installation send to that Metering Services
has no capability to Provider notice in writing setting
transmit the metering out the nature of the breach and
data electronically to if the Metering Services Provider
the metering database, remains in breach for a period of
the WESM Participant more than 7 business days after
must use its reasonable notice from the Market Operator,
endeavors to ensure that the Market Operator may
the Market Operator is deregister the Metering Services
given alternative access Provider.
to, or is provided with,
the metering data in 4.7.4 Deregistration following unethical
accordance with the act
procedures established
under the Grid Code and The Market Operator may
Distribution Code. deregister a Metering Services
Provider for unethical act or
4.7
DEREGISTRATION OF METERING behavior.
SERVICES PROVIDERS
4.7.5 Effect of deregistration for
4.7.1 Settlement with inaccurate unethical act
metering information
If the Market Operator deregisters
The Market Operator shall develop a Metering Services Provider in
a detailed process for settling accordance with clause 2.6.2 and
accounts retroactively to correct subject to clause 2.7, the Market
incorrect metering information Operator shall:
and market settlements that
results from meter tampering, (a) Notify the ERC and the WESM
meter bypass, meter failure, data Participants of this action and
loss, unethical conduct, excessive basis for decision; and
inaccuracy or other causes.
(b) Publish details of the
4.7.2 Sanctions for inaccurate metering deregistration.
information
4.8 DATABASES
develop a process of penalties 4.8.1 Installation Databases
and sanctions for Meter Services
4.8.1.1 The Metering Services 4.8.2.2 The metering database
Provider shall create, shall include metering
maintain and administer data, energy data, data
an installation database in substituted in accordance
relation to all its metering with this clause 4.7 and
installations. all calculations made for
settlement purposes.
4.8.1.2 The Metering Services
Provider shall ensure that 4.8.2.3 Data shall be stored in the
each affected Participant metering database:
and the Market Operator
is given access to the (a) For 16 months in
information in its accessible format;
installation database at all and
reasonable times and:
(b)
For 10 years in
(a) In the case of data archive.
sixteen months old
or less, within seven 4.8.3 Rights of Access to Metering Data
business days of
receiving written The only entities entitled to have
notice from the either direct or remote access to
person or entity metering data on a read only basis
seeking access; and from the metering database or the
metering register in relation to a
(b) In the case of data metering point are:
more than sixteen
months old, within (a) Each Trading Participant
thirty days of receiving whose settlement amounts
written notice from are determined by reference
the person or entity to quantities of energy flowing
seeking access. through that metering point;
4.8.1.3 The Metering Services (b) The Metering Services Provider

Provider shall ensure that who is responsible for the
its installation database metering installation at that
contains the information metering point;
specified in Appendix B2.
(c) A Network Service Provider
4.8.2 Metering Database associated with the metering
point;
4.8.2.1 The Market Operator shall
create, maintain and (d) The Market Operator and its
administer a metering authorized agents; and
database, which shall
include a metering register (e) Any Customer who purchases
containing information for electricity at the associated
each metering installation connection point;
registered with the
Market Operator.
(f) The Market Surveillance (a) New technologies and the impact of
Committee; and new technologies on and in relation
to technical standards for metering
(g) The ERC. in the WESM Rules, the Grid Code
and Distribution Code;
4.8.4 Confidentiality
(b) Contestability in the provision and
Subject to clause 4.7.3, metering types of meters used; and
data is confidential and each
WESM Member and Metering (c) Whether the provisions of this
Services Provider shall ensure that chapter 4 have the effect of
such data is treated as confidential eliminating the use of alternative
information in accordance with the types of meters.
WESM Rules.
4.11 TRANSITORY PROVISION
4.8.5 Payment for Access to Metering
Data During the initial operation of the WESM,
the TRANSCO shall provide the services

All reasonable costs required of the Metering Services
(including, without limitation, Provider, but this shall not exclude other
telecommunications charges) entities from doing the same, provided
incurred by the Metering Services they meet the requirements provided
Provider in providing access to herein.
metering data at a metering
installation or by the Market CHAPTER 5:
Operator in providing access MARKET INFORMATION AND
to information in the metering CONFIDENTIALITY
database shall be paid by the
WESM Member to whom the 5.1 SCOPE OF CHAPTER 5
metering data or information was
provided. This chapter 5 sets out:
4.9 DATA VALIDATION AND SUBSTITUTION (a) Procedures for dealing with spot
market information, including:
The Market Operator is responsible
for the validation and substitution of (1) Systems and procedures for the
metering data after being furnished provision and storage of spot
settlement-ready metering data by the market information; and
Metering Services Provider and shall
develop data validation procedures in (2) A requirement to audit spot
consultation with WESM Participants and market information; and
in accordance with Appendix C1.2 (d).
(b)
Procedures for dealing with
4.10 PROCESSES AND REVIEW confidential information, including
The Market Operator shall undertake a (1) Exceptions to the general rule
periodic review of the provisions of this that confidential information
chapter 4 in accordance with the public shall not be disclosed; and
consultation procedures, including but
not limited to:
(2) Conditions of disclosure of of such informational
confidential information. materials upon request
and reimbursement of
5.2 MARKET INFORMATION AND cost to produce the same.
CONFIDENTIALITY
5.2.1 Provision of Information shall make available to
the ERC all pertinent
5.2.1.1 The provisions of this information which would
chapter are always help the latter effectively
subject to the rights and perform its regulatory and
obligations of the Market oversight functions.
Operator and WESM
Members in relation to 5.2.1.5 The Market Operator shall
confidential information make available to the DOE
as set out in clause 5.3. all pertinent information
which would help the
5.2.1.2 In addition to any specific latter effectively perform
obligation of the Market its energy policy-making
Operator under the function.
WESM Rules to provide
information, the Market 5.2.2 Systems and Procedures
Operator:
5.2.2.1 Information required,
(a) Shall, upon written covered or otherwise
request, make contemplated by the
available to Trading WESM Rules such as
Participants those provided by
any information WESM Members to
concerning the the Market Operator
operation of the spot or those provided by
market provided the Market Operator to
that said information WESM Members shall be
is not confidential provided by means of an
or commercially- electronic communication
sensitive; and system unless the WESM
Rules specify otherwise
(b) May charge a fee or changed or modified by
reflecting the cost the Market Operator.
of providing such
information. 5.2.2.2 Information provided by
means of an electronic
5.2.1.3 The Market Operator communication system
shall make public and shall be in accordance with
electronically post the templates included
information on the in the said electronic
market price as well as communication system
reasons for any significant unless otherwise changed
movement thereon and or modified by the Market
provide hard copies
Operator as approved by communication
the PEM Board. systems; and
5.2.2.3 As far as practicable, the (b) E l e c t r o n i c

Market Operator shall communication
incorporate a binding procedures.
acknowledgement
receipt in its electronic 5.2.2.7 The Market Operator shall
communication system provide the ERC and DOE
which would establish all necessary facilities to
the time the pertinent effectively monitor the
information is actually operation of the WESM,
received. on realtime and for review
purposes.
5.2.2.4 Information is deemed
to be published by the 5.2.3 Participant Data
Market Operator when
the information is posted The Market Operator shall
on the market information maintain, periodically update as
website. it considers reasonably necessary
from time to time and publish:
shall maintain and publish (a) A list of all WESM Members
electronic communication identifying those of them that
procedures under which: are Trading Participants;
(a) Information shall be (b) A list of all membership

provided by WESM applicants to the WESM and
Members to the identifying those applying to
Market Operator; become a Trading Participant;
(b) Information shall (c) A list of all former WESM

be provided by the Members and the time that
Market Operator to each ceased to be WESM
WESM Members; and Members; and
(c) Information published (d) A list of all suspended Trading

on the market Participants and the time at
information website which each was suspended.
may be accessed by
Trading Participants. 5.2.4 Planning and Design Data
5.2.2.6 From time to time, the 5.2.4.1 Consistent with the

Market Operator, in Grid Code, the System
consultation with WESM Operator is to maintain a
Members, may review and register of data provided
alter: by Trading Participants
and Network Service
(a) The requirements Providers for planning and
for electronic design purposes.
5.2.4.2 The System Operator shall settlements systems;
provide on a regular basis
a copy of the register (c) Billing and
of data prepared under information systems;
clause 5.2.4.1 to the
Market Operator in a form (d) The scheduling and
specified by the Market dispatch processes;
Operator.
(e) The processes
5.2.5 Information Records for software
management; and
The Market Operator shall retain
all information provided to it (f) The Market Operator’s
under the WESM Rules for at compliance with the
least ten years in a form it deems WESM Rules.
appropriate for reasonable access
as may be required by the ERC or 5.2.6.3 The PEM Auditor shall
the DOE. prepare a report on the
results of the spot market
5.2.6 Market Audit audit.
5.2.6.1 The Market Operator shall 5.2.6.4 Following consideration by

arrange for a spot market the Market Operator, the
audit to be performed spot market audit report
once each quarter, or shall be made available
such other period as by the Market Operator
determined by the Market to the ERC, the PEM Board
Operator in consultation and WESM Members.
with the PEM Auditor.
5.3 CONFIDENTIALITY
5.2.6.2 The spot market audit
shall cover and review 5.3.1 Confidentiality
compliance by the
Market Operator with 5.3.1.1 Each WESM Member and
its procedures and the Market Operator shall
the effectiveness and keep confidential any
appropriateness of confidential information
systems utilized in the which comes into their
operation of the spot control, possession or
market, including but not otherwise be aware of.
limited to:
5.3.1.2 A WESM Member and the
(a) Valid audit certificates Market Operator:
for the current
versions of all numeric (a) Shall not disclose
software; confidential
information to any
(b) The calculations and person or entity
allocations performed except as permitted
by the metering and by the WESM
Rules; (4) Any other person or
entity, including but not
(b)
Shall only use limited to a committee
or reproduce appointed by the PEM
confidential Board in accordance with
information for the the WESM Rules,
purpose for which
it was disclosed for the purposes of:
or for a purpose
contemplated by the (5) The operation, security
WESM Rules; and and planning of the power
system in accordance with
(c)
Shall not permit the Grid Code;
unauthorized
persons to have (6) Complying with any other
access to confidential instrument (including any
information. contractual instrument or
understanding governing
5.3.1.3 Each WESM Member and the relationship between
the Market Operator the parties detailed in
shall use all reasonable clauses 5.3.2 (a) (1) to (a)
endeavors to: (5)); and
(a) Prevent unauthorized (7) Any other circumstance

access to confidential which, in the reasonable
information which is opinion of the Market
in its possession or Operator, is necessary
control; and to assist the Market
Operator in establishing
(b)
Ensure that any and operating the WESM
person to whom it in accordance with the
discloses confidential WESM objectives;
information observes
the provisions of this (b)
The disclosure, use or
clause 5.3 in relation reproduction of information
to that information. if the relevant information
is at that time generally and
5.3.2 Exceptions publicly available other than
as a result of a breach of this
Subject to clause 5.3.3.1, this clause 5.3;
clause 5.3 does not prevent:
(c) The disclosure of information
(a) The disclosure of information by a WESM Member or the
(confidential or otherwise) Market Operator, or by
between any one or more of persons to whom the WESM
the following: Member or the Market
(1) The ERC and the DOE; Operator (as the case may be)
(2) The System Operator; has disclosed that information
(3) The Market Surveillance to such as:
Committee; and
(1) An employee or officer of expert determination or
the WESM Member; or other dispute resolution
mechanisms relating to the
(2)
A legal or other WESM Rules, or for the purpose
professional adviser, of advising a person in relation
auditor or other thereto provided that those
consultant of the WESM to whom the information
Member or the Market is disclosed undertakes in
Operator (as the case may writing not to further disclose
be); or that information to any other
person;
(3) Similar persons or entities,
(g) The disclosure of information
for purposes of complying with to the extent required to
the WESM Rules, or advising protect the safety of personnel
the WESM Member or the or equipment;
Market Operator in relation
to the WESM Rules proved (h)
The disclosure, use or
that the person receiving the reproduction of information
information undertakes in by or on behalf of a WESM
writing not to further disclose Member or the Market
that information to any other Operator to the extent
person; reasonably required in
connection with the WESM
(d)
The disclosure, use or Member’s or the Market
reproduction of information Operator’s financing
with the written consent arrangements (as the case
of the person or persons may be), investment in a
who provided the relevant WESM Member or a disposal
information under the WESM of a WESM Member’s assets
Rules; provided that those to whom
the information is disclosed
(e)
The disclosure, use or signs a written undertaking
reproduction of information not to further disclose that
to the extent required by law information to any other
or by a lawful requirement of: person;
(1) The ERC and the DOE; or (i) The disclosure of information
(2) Any government authority to the ERC and DOE and any
having jurisdiction over other government authority
a WESM Member or the having jurisdiction over a
Market Operator; WESM Member, pursuant to
the WESM Rules or otherwise.
(f) The disclosure, use or
reproduction of information 5.3.3 Conditions
if necessary in accordance
with the lawful requirements 5.3.3.1 Any entity who receives
of or in connection with legal information disclosed in
proceedings, arbitration, accordance with clause
5.3.2 (a):
(a) Shall not disclose incurs or is liable for in respect of
the information to any breach of this clause 5.3 by
any person, except that WESM Member or any officer,
as provided by the agent or employee of that WESM
WESM Rules; and Member: Provided that no WESM
Participant shall be liable for any
(b) Shall only use the of the foregoing to the extent they
information for the arise from the gross negligence or
purposes for which it willful misconduct of the Market
was disclosed under Operator.
clause 5.3.2(a).
5.3.5 Survival
5.3.3.2 In the case of a disclosure
under clause 5.3.2(c),
Notwithstanding any other
5.3.2(f) or 5.3.2(i), the provision of the WESM Rules, a
WESM Member or the person shall continue to comply
Market Operator (as the with this clause 5.3 after that
case may be) who wishes person has ceased to be a WESM
to make the disclosure, Member.
shall prior to making the
disclosure, inform the 5.3.6 The Market Operator Information
proposed recipient of
the information that it is The Market Operator shall develop
confidential information and, to the extent practicable,
and shall take appropriate implement a procedure approved
precautions, including at by the PEM Board to:
the very least securing a
written undertaking from (a) Protect information which
the recipient that such it acquires pursuant to the
recipient will keep the Market Operator functions
information confidential from use or access which is
to ensure that the contrary to the provisions of
recipient keeps the the WESM Rules;
information confidential
in accordance with the (b) Protect information which
provisions of this clause is commercially sensitive
5.3 and does not use from use or access by
the information for any members of the PEM Board
purpose other than that who are officers, directors
permitted under clause or employees of a WESM
5.3.2. Member; and
5.3.4 Indemnity to the Market Operator (c) Disseminate such information

in accordance with its rights,
Each WESM Member indemnifies powers and obligations in a
the Market Operator against manner, which promotes ease
any claim, action, damage, loss, of entry into and the orderly
liability, expense or outgoing which operation of the spot market.
the Market Operator pays, suffers,

CHAPTER 6: (a) An emergency;
INTERVENTION AND MARKET
SUSPENSION (b) A threat to system
security; or
6.1 SCOPE OF CHAPTER 6
(c) An event of force
This chapter 6 sets out: majeure.
(a) The procedures which shall be 6.2.1.3 During intervention or

established by the Market Operator, market suspension, the
System Operator and WESM System Operator and
Participants to ensure that they are Market Operator shall
able to take all necessary actions in coordinate their actions to
an emergency; restore normal operation
of the power system and
(b) The procedures to be followed the market.
by the Market Operator, System
Operator and WESM Participants in 6.2.1.4 WESM Participants
an emergency; acknowledge that:
(c) The procedures which are to take (a) The operation of

effect in the event of a threat to the power system
system security; and involves risks to public
safety and property
(d) The circumstances and manner in and therefore accept
which the ERC through the Market that the provisions
Operator may intervene or suspend of this chapter 6
the spot market. are appropriate and
reasonable;
6.2 OVERVIEW
(b) Their business
6.2.1 Preparation and Responses interests will be
subordinate to
6.2.1.1 The System Operator the need for the
is responsible for Market Operator
giving directions and and System Operator
coordinating the actions, to implement
which are to be taken by e m e r g e n c y
WESM Participants and procedures in
Market Operator when accordance with the
there is market suspension Grid Code and clause
or intervention. 6.3.2 and to make
declarations and issue
6.2.1.2 Intervention is warranted emergency directions
when the grid is in under clause 6.5 in an
extreme state condition emergency;
as established in the Grid
Code arising from: (c) Subject to clause
6.2.1.1, the System
Operator shall issue
emergency directions During market suspension and
in accordance with intervention, the Market Operator
the Grid Code, and shall impose an administered
shall report such price cap to be used as basis for
action to the Market settlements.
Operator.
Prior to the spot market
6.2.2 Exemption from Liability due commencement date, the Market
to Market Suspension and Operator shall develop and publish
Intervention an administered price cap to be
used during market suspension or
6.2.2.1
In the events of intervention of the spot market.
market suspension or Said administered price cap is to
intervention, any action of be endorsed by the PEM Board for
the ERC, Market Operator, ERC approval.
System Operator or a
WESM Participant in 6.3 EMERGENCIES
compliance with the
emergency procedures 6.3.1 Emergency
provided in this Chapter
shall not constitute a 6.3.1.1 The System Operator shall
breach of the WESM declare an emergency
Rules, except in the case when it determines the
of an act committed in bad existence of a situation
faith or gross negligence which has an adverse
shall not be liable for any material effect on
loss incurred by a WESM electricity supply or which
Participant as a result poses as a significant
of any action taken by threat to system security.
the System Operator or The System Operator shall
Market Operator under report an emergency to
this chapter 6. the ERC.
6.2.2.2 Nothing in this chapter 6.3.1.2 An emergency may

6 is to be taken to limit include:
the ability of the System
Operator or Market (a) A significant electricity
Operator to take any supply capacity
action or procedure under shortfall, being a
this chapter 6 which either condition where
the System Operator there is insufficient
or Market Operator generation or supply
considers in their absolute options available to
discretion to be necessary securely supply in
to protect the public or one or more regions
property. of the power system
likely to be affected
6.2.3 Administered Price Cap by the event;

(b) A power system Participant becomes
disturbance due to aware where, in
an outage in the the reasonable
transmission network opinion of the WESM
or generating Participant, that
system for which event or situation is
market processes of a kind described in
are inadequate for clause 6.3.1.2; and
recovery;
(b) Any action taken
(c) A significant by the WESM
environmental Participant under its
phenomenon, safety procedures or
including weather, otherwise in response
storms or fires to that event or
which are likely to situation,
or are significantly
affecting the power in accordance with the
system for which Grid Code and Distribution
market processes Code.
are inadequate for
recovery; 6.3.1.4 The System Operator
may, from time to time,
(d) A system blackout specify procedures for
or significant power communicating the
system undervoltage existence of an emergency
condition; and all relevant
information relating to the
(e) Material damage to emergency to the WESM
a distribution system Participants.
which has or is likely
to adversely affect 6.3.1.5 Notwithstanding any
the operation of the other provision contained
transmission system in these Rules, the ERC,
or to render the spot DOE or the PEM Board
market ineffective; may investigate or require
and explanations regarding an
emergency direction given
(f) A situation, which by the System Operator.
the Government
proclaims or declares 6.3.1.6 Each WESM Participant
an emergency. shall use its best
endeavors to ensure that
6.3.1.3 A WESM Participant its safety plan permits it
shall notify the System to comply with emergency
Operator as soon as directions.
practicable of:
6.3.1.7 When the System
(a) Any event or situation Operator has determined
of which the WESM that an emergency
or the effect thereof (b)
Avert or reduce
has ended,the System the effect of an
Operator shall notify the emergency;
Market Operator who in
turn shall notify all WESM (c) Issue notifications
Participants and the DOE and warnings to
that the emergency or the Market Operator,
effect of such emergency the PEM Board, the
has ended. DOE and ERC where
appropriate; and
6.3.2 Emergency Procedures
(d) Restore the
6.3.2.1 During the period when power system to a
the power system may satisfactory operating
be or is affected by an state immediately
emergency the System after an emergency.
Operator shall carry out
actions, in accordance 6.3.2.3 Emergency procedures
with the system security may require a WESM
and reliability guidelines Participant to take action,
and its obligations (if any) or not to take action,
concerning sensitive loads in accordance with
to: emergency directions
given by the System
(a) Identify the impact Operator.
of the emergency on
system security in 6.3.2.4 Prior to spot market
terms of the capability commencement date,
of generating units, the System Operator in
transmission systems consultation with the
or distribution Market Operator shall:
systems; and
(a) Develop appropriate
(b) Identify and e m e r g e n c y
implement the procedures in
actions required accordance with
to restore the the Grid Code and
power system to its Distribution Code.
satisfactory operating Such procedures shall
state. be subject to approval
of the PEM Board;
6.3.2.2 Emergency procedures and
are the procedures to be
taken by or at the direction (b) Publish details of the
of the System Operator to: approved emergency
procedures.
(a) Maintain system
security; 6.3.2.5 The System Operator
shall, in consultation with
the Market Operator,
review the emergency 6.3.2.7 The System Operator
procedures from time to shall make available a
time. copy of the emergency
procedures to all WESM
6.3.2.6 Each WESM Member shall Participants within
promptly: seven (7) days after each
occasion on which the
(a)
Comply with any emergency procedures
emergency direction have been updated.
given by the System
Operator, including 6.4
EMERGENCY PLANNING BY WESM
emergency directions PARTICIPANTS
requiring the
disconnection of 6.4.1 WESM Participant Emergency
equipment from a Contacts
transmission system
or distribution 6.4.1.1 Each WESM Participant
system for reliability shall provide the Market
purposes, unless the Operator and System
WESM Participant Operator with:
reasonably believes
that an emergency (a) An effective means
direction given by of communication
the System Operator by which a
poses a real and representative of the
substantial risk WESM Participant
of damage to its may be contacted by
equipment, to the the Market Operator
safety of its employees 24 hours a day; and
or the public, or of
undue injury to the (b)
The name and
environment; title of the WESM
Participant’s
(b) Notify the System representative who
Operator if it intends can be contacted by
not to follow the using that means of
emergency direction communication.
for any of the reasons
described in clause 6.4.1.2 The representative of
6.3.2.6 (a); and each WESM Participant
nominated under
(c) Comply with the clause 6.4.1.1 shall
System Operator’s be a person having
direction to the appropriate authority
fullest extent possible and responsibility within
without causing the the WESM Participant’s
harms described in organization to act as the
clause 6.3.2.6 (a). primary contact for the
System Operator in the
event of an emergency.
6.4.1.3 Each WESM Participant decisions or take action in
shall immediately notify an emergency.
the Market Operator
and System Operator of 6.5 RESPONSE TO AN EMERGENCY
a change to the details
provided under clause 6.5.1 Declarations and Directions in an
6.4.1.1. Emergency
6.4.2 WESM Participant Procedures 6.5.1.1 During an emergency:
6.4.2.1 Each Trading Participant (a) The System Operator

and Network Service shall, in coordination
Provider shall establish with the Market
and maintain its own Operator, issue
internal safety procedures emergency directions
necessary to enable it and, as it reasonably
its Customers, to comply considers necessary,
with emergency directions which may include,
under this chapter. but need not be
limited to, directions
6.4.2.2 Each Trading Participant to:
and Network Service
Provider shall ensure that (1) Switch off, or re-
the safety procedures it route, energy
establishes under clause delivery from
6.4.2.1 are consistent a Generation
with the emergency Company;
procedures established
under clause 6.3.2.4 and (2) Call equipment
the Grid Code. into service;
6.4.3 Emergency Procedures Awareness (3) Take equipment

out of service;
6.4.3.1 Each Trading Participant
shall at all times ensure (4) C o m m e n c e
that all of its responsible o p e rat i o n
officers and staff and or maintain,
their Customers, are increase or
familiar with both the reduce active or
safety and the emergency reactive power
procedures. output;
6.4.3.2 For the purposes of (5) Curtail, shut down

clauses 6.4.3.1 and 6.5.1, or otherwise vary
responsible officers and operation or
staff are those whose output;
functions or areas of
responsibility are such (6) Shed or restore
that they are likely to load; and
be required to make
(7) Subject to clause soon as reasonably
6.8, do any other practicable, of the
act or thing commencement,
necessary to be nature, extent and
done for reasons expected duration
of public safety or of the emergency
the security of the and the way in
power system or which the System
of undue injury to Operator reasonably
the environment. anticipates it will act
in response to the
(b) The System Operator emergency; and
shall also:
(d) Notify the ERC, the
(1) Implement any DOE, and WESM
load shedding Participants of any
in a manner material changes in
consistent with the nature, extent and
the system expected duration of
security and an emergency.
reliability
guidelines; and 6.5.1.3 Upon being notified of an
emergency, each WESM
(2) To the extent Participant shall advise
possible and all responsible officers
in accordance and staff (as defined
with the Market in clause 6.4.3.2) and
Operator ’s their Customers, of the
responsibility in existence and nature of
relation to vital the emergency.
loads, determine
a rotating outage 6.5.1.4 Each WESM Participant
plan, and rotate shall, subject to clause
any load shedding 6.5.1.5:
requirements.
(a) Comply with
6.5.1.2 When an emergency safety procedures,
arises, the System the emergency
Operator shall: procedures applicable
to the WESM
(a) Immediately notify Participant in the
the Market Operator; circumstances, this
chapter, and all
(b) Notify the ERC emergency directions
and the DOE, as given by the System
soon as reasonably Operator; and
practicable;
(b) Cooperate with the
(c) Notify WESM Market Operator
Participants, as and the System
Operator to enable the emergency, including
the System Operator without limitation:
to implement
the emergency (a) Increase the
procedures. generation or supply
capability such as
6.5.1.5 Where there is conflict requesting available
between these Rules and: but not committed
generating units
(a) The requirements of to start-up, or
a WESM Participant’s recall transmission
safety procedures; equipment outages;
(b) The emergency (b) Disconnect one or

p r o c e d u r e s more connection
applicable to the points as considered
WESM Participant by the System
in the relevant Operator to be
circumstances; necessary;
(c) Direct, in accordance

(c) This chapter;
with clause 6.5.1,
a Customer to
(d) Any procedures
take such steps as
developed by the
are reasonable to
System Operator; or
immediately reduce
its load;
(e) An emergency
direction given by the (d) Constrain-on or
System Operator, constrain-off a
Generation Company;
the System Operator shall and
decide which of those
requirements or part e) Require WESM
of those requirements Participants to do
is to prevail and advise any reasonable act
the relevant WESM or thing which, the
Participants accordingly. System Operator
believes necessary in
6.5.2 Intervention Due to Emergency the circumstances.
Thereafter, the
6.5.2.1 If, in the best judgment
System Operator shall
of the System Operator,
report in detail to the
insufficient time exists for
PEM Board in detail
the spot market to address
regarding the actions
an emergency, the System
and circumstances
Operator shall take any
under which the
measures it considers
intervention was
to be reasonable and
made.
necessary to overcome

6.6 SYSTEM SECURITY possibility of a threat
to system security, the
6.6.1 System Security and Reliability System Operator shall
Guidelines without delay notify the
WESM Participants and
6.6.1.1 In consultation with the Market Operator of
WESM Participants and such threat. Said notice
the Market Operator, the shall include the details of
System Operator shall that threat as well as:
develop and periodically
update system security (a)
The nature and
and reliability guidelines, general magnitude of
subject to approval of the the threat to system
PEM Board. security, including an
estimate of the likely
6.6.1.2 The system security and duration thereof, and
reliability guidelines the likely shortfall in
developed under clause supply, likely to occur
6.6.1.1 shall be provided during that period;
to:
(b) The timeframe, in
(a) The ERC and the which, the System
DOE on completion Operator will need to
and after any update intervene in the spot
thereon; market if the threat to
system security does
(b) WESM Participants; not subside without
and intervention by the
System Operator; and
(c) Interested persons
upon request. (c) The regions of the
power system in
6.6.1.3 If the System Operator which the threat to
proposes a change to system security is
the system security and likely to be located.
reliability guidelines
which, in the System 6.6.2.2 If the System Operator
Operator’s reasonable provides the notice
opinion, is a material with details of a threat
change then, prior to its to system security to
implementation, that WESM Participants, in
proposed change shall be accordance with clause
reviewed in accordance 6.6.2.1, the System
with the Grid Code and Operator may issue
Distribution Code. instructions, requiring
each WESM Participant to
6.6.2 Notice of Threat to System Security provide best estimates of
the following:
6.6.2.1 Upon determination of
the existence or the likely
(a) A Scheduled threat to system security
G e n e r a t i o n to be at an end.
Company’s plant
availability to either 6.6.3 Response to System Security
increase or decrease Threat
generation; and
6.6.3.1 If the System Operator
(b) A Customer’s ability has identified a threat
to either increase or to system security and
decrease market load. reasonably considers
that sufficient time exists
6.6.2.3 Despite clause 5.3, a for the threat to subside
WESM Participant shall without intervention, the
not withhold information System Operator shall,
required by the System in accordance with the
Operator in accordance procedures set out in
with clause 6.6.2.2. clause 6.6.4, facilitate a
The WESM Participant spot market response to
shall comply with the overcome the threat to
instructions and provide system security.
the information required
as soon as practicable. 6.6.3.2 If the System Operator
has identified a threat
6.6.2.4 The System Operator shall to system security and
treat all information it does not believe that
provided to it by a WESM sufficient time exists for
Participant under clause the threat to subside
6.6.2.2 as confidential without intervention then
information and may only the System Operator shall:
use that information for
the following purposes: (a) Take any measures
it believes to be
(a) Maintaining or re- reasonable and
establishing system necessary to maintain
security by issuing or restore system
emergency directions security including
under clauses 6.6.4 those set out in clause
and 6.6.5; 6.6.5; and
(b) Making a decision (b) Act at all times in

under clause 6.6.3; accordance with the
and system security and
reliability guidelines.
(c) Regulatory reporting.
6.6.4 Market Response to Threat to
6.6.2.5 The System Operator shall System Security
inform WESM Participants
and the Market Operator 6.6.4.1 If the System Operator
immediately when it believes that sufficient
reasonably considers a time exists for a threat to
system security to subside 6.6.4.3 The Market Operator may:
without intervention, the
System Operator shall: (a) Invite Trading
Participants to
(a) If it has not already revise or re-bid their
done so, provide physical capabilities
WESM Participants submitted by such
with the information Trading Participants
set out under clause in accordance with
6.6.2.1; and clause 3.4 in respect
of the relevant
(b) Advise the Market trading interval; and
Operator and those
WESM Participants (b) Notify all Trading
who the System Participants of
Operator considers significant changes
would be required to the information
to take action or provided under this
cease taking action clause 6.6.4.
if the threat to
system security is 6.6.4.4 WESM Participants shall
not resolved without comply with all requests
intervention of the and directions issued
following information: by the Market Operator
under this clause 6.6.4.
(1) The existence
of the threat to 6.6.5 Intervention Due to System
system security; Security Threat
and
6.6.5.1 If, in the best judgment
(2) The likely of the System Operator,
nature of any insufficient time exists
requirement for the spot market to
of the Grid address a threat to system
Operator if the security, the System
System Operator Operator shall take any
determines that it measures it considers
should intervene. to be reasonable and
necessary to overcome
6.6.4.2 The action or cessation the threat to system
of action required security, including without
under clause 6.6.4.1(b) limitation:
may include, but is not
limited to, changes by (a) Increase the
the Market Operator to generation or supply
the pre dispatch schedule capability such as
affecting scheduled requesting available
generating units, schedule but not committed
network services and/or generating units
scheduled load. to start-up, or
recall transmission reasonable diligence, cannot be
equipment outages; or be caused to be prevented, or
removed and has resulted in a
(b) Disconnect one or reduction in the normal capacity of
more connection part or all of the power transmission
points as considered system during that trading interval
by the System and such reduction is likely to
Operator to be materially affect the operation
necessary; of the spot market or materially
threaten system security.
(c) Direct, in accordance
with clause 6.5.1, 6.7.2 Force majeure event
a Customer to
take such steps as Events of force majeure shall
are reasonable to include:
immediately reduce
its load; (1) Major network trouble that
caused partial or system-wide
(d) Constrain-on or blackout;
constrain-off a
Generation Company; (2) Market system hardware or
and software failure that makes
it impossible to receive or
(e) Require WESM process market offer/bid
Participants to do information or dispatch the
any reasonable act system in accordance with the
or thing, which the WESM Rules; and
System Operator
(3) Any other event, circumstance
believes necessary in
or occurrence in nature of, or
the circumstances.
similar in effect to any of the
foregoing.
6.6.5.2 Thereafter, the System
Operator shall report in 6.7.3 Notification
detail to the PEM Board
in detail regarding the 6.7.3.1 The WESM Participant
actions and circumstances shall notify the Market
under which the Operator as soon as
intervention was made. reasonably possible of the
occurrence of any force
6.7 FORCE MAJEURE majeure event.

6.7.1 Force majeure event
shall notify all Trading
Participants as soon as
A force majeure is the occurrence
reasonably possible of
in a trading interval of an event or
the nature of the force
events not within the reasonable
majeure and the extent to
control, directly or indirectly, of
which the force majeure
the Market Operator and WESM
affects the operation of
member, to the extent that such
the spot market.
event, despite the exercise of the
6.7.4 Obligations of WESM Participants (b) The Market Operator
shall notify all WESM
WESM Participants shall use all Participants,
reasonable endeavors to:
as soon as possible.
(a) Ensure that they do not cause
or exacerbate a force majeure 6.8.2.2 The spot market is deemed
event; and suspended at the start
of the trading interval in
(b) Mitigate the occurrence and which the ERC advises the
effects of a force majeure Market Operator that the
event. spot market is suspended.
6.8 MARKET SUSPENSION 6.8.2.3 Following a declaration

by the ERC under clause
6.8.1 Conditions for Suspension of the 6.8.1.1, the spot market
Market is to remain suspended
until the ERC notifies the
6.8.1.1 Pursuant to Section 30 Market Operator that spot
of the Act, the ERC shall market operation is to
suspend the operation of resume.
the spot market or declare
a temporary wholesale 6.8.2.4 The Market Operator
electricity spot market shall promptly notify all
failure in cases of: WESM Participants that
spot market operation is
(a) Natural calamities; or to resume and the time
at which spot market
(b) Following official operation is to resume.
declaration of
a national and 6.8.2.5 Notwithstanding a
international security suspension of the spot
emergency by the market, the Market
President of the Operator may issue
Republic. emergency directions to
WESM Participants in
6.8.2 Declaration of Market Suspension accordance with clause
6.5.1.
6.8.2.1 The spot market can
only be suspended by a 6.8.3 Effect of Market Suspension
declaration by the ERC
under clause 6.8.1.1 6.8.3.1 The market price during a
and if the spot market is trading interval in which
suspended: the ERC has declared
the spot market to be
(a) The ERC shall notify suspended and up to
the Market Operator; the time that the market
and resumes in accordance
with 6.8.2.4 is to be
determined by the Market
Operator in accordance relation to the
with clause 6.2.3. event or events
which occurred;
6.8.3.2 During a trading interval
in which the spot market (b) T h e
is suspended, the WESM appropriateness
Rules will continue to apply of actions taken
with such modifications by the System
as the Market Operator Operator and the
reasonably determines Market Operator
to be necessary, taking in relation to the
into consideration the event or events
circumstances and which occurred;
conditions giving rise to
the decision by the ERC to (c) The costs
suspend the spot market. incurred by
WESM Members
6.8.4 Intervention Report as a consequence
of responding
6.8.4.1 Upon the concurrence to the event or
of one or more of the events; and
following events:
(d) Any finding of
(a) An intervention; potential, fault
of any WESM
(b) An event which, in Participant
the System Operator’s including a
reasonable opinion, is preliminary
or may be a threat to recommendation
system security; for further
evaluation by the
(c) A force majeure PEM Auditor.
event; or
6.8.4.2 A copy of the report
(d) An emergency, prepared under clause
6.8.4.1 shall be provided
The PEM Board shall, to:
within ten days thereof,
direct the Market (a) The PEM Board;
Surveillance Committee
to investigate the (b) The ERC and the DOE;
circumstances of that and
event and prepare a
report to assess: (c) WESM Participants
and interested
(a) The adequacy persons on request.
of the relevant
provisions of the 6.8.5 Market Suspension Report
WESM Rules in

6.8.5.1 Within ten business days In line with the principles of self-
following a declaration governance, expeditious, just and least
by the ERC under clause expensive disposition of disputes and
6.8.1.1, the Market considering the continuous nature of
Surveillance Committee the transactions and operations of the
shall investigate the WESM, this chapter sets out:
circumstances of that
event and prepare a (a) The responsibilities for ensuring that
report to assess: all WESM Members comply with the
WESM Rules;
(a) The adequacy of the
provisions of the (b) The procedures on how the alleged
WESM Rules relevant breaches will be dealt with including:
to the event or events
which occurred; (1) The correct party to whom
notice of an alleged breach of
(b) The appropriateness the WESM Rules by a WESM
of actions taken by Member shall be given;
the Market Operator
in relation to the (2) The manner in which an alleged
event or events which breach is to be investigated;
occurred; and
(3) The manner in which a breach is
(c) The costs incurred by to be sanctioned; and
the WESM Members
as a consequence of (c) Other provisions on how disputes
responding to the are to be resolved, including the
event or events. appointment of a Dispute Resolution
Administrator and Dispute Resolution
6.8.5.2 A copy of the report Panel.
prepared under clause
6.8.5.1 shall be provided 7.2 ENFORCEMENT
to:
7.2.1 Compliance
(a) The PEM Board;
The PEM Board, in consultation
(b) The ERC and the DOE with the Market Operator and the
on completion of the System Operator, shall do all things
report; and reasonably necessary to ensure
that all WESM Members comply
(c) WESM Participants with the WESM Rules.
and interested
persons on request. 7.2.2 Breaches of the WESM Rules by
WESM Participants
CHAPTER 7:
ENFORCEMENT AND DISPUTES 7.2.2.1 If a WESM Member or
the Market Operator
7.1 SCOPE OF CHAPTER 7 has reasonable grounds
to believe that another
WESM Member may have
committed or may be sanctions that may be
committing a breach of the imposed if the breach
WESM Rules, the WESM is not remedied;
Member or the Market
Operator shall notify the (b) Require the WESM
PEM Board of the alleged Member to explain
breach in writing as soon in writing the alleged
as possible. breach within ten (10)
calendar days from
7.2.2.2 The PEM Board shall receipt thereof; and
direct the Disputes
Resolution Administrator (c) Order the WESM
to investigate the alleged Member who is in
breach as soon as possible, alleged breach to
when: immediately remedy
the act or omission
(a) A WESM Member or comprising the
the Market Operator alleged breach or
notifies the PEM some other remedial
Board of an alleged measure, if in the
breach of the WESM opinion of the
Rules in accordance Dispute Resolution
with clause 7.2.2.1; or Administrator,
exercising due and
(b) The PEM Board has necessary diligence,
a reasonable ground believes that
to believe that the some remedial or
WESM Member has preventive measure
committed or is should be taken to
committing an act abate the effects of
probably in violation the act or omission
of the WESM Rules. complained of;
Provided that (i)
7.2.2.3 The Disputes Resolution complying with
Administrator shall issue the order shall not
a written notice to the be deemed as an
WESM Member who is admission of guilt of
alleged to be in breach of the act or omission
the WESM Rules within complained of, and (ii)
five calendar days upon shall be recognized as
receipt of notice from the a mitigating factor if
PEM Board. the complying party
is later determined to
7.2.2.4 The said notice issued by be in breach.
the Disputes Resolution
Administrator shall: 7.2.2.5 The notice shall be copy
furnished to:
(a) Specify the nature of
the breach and the (a) The PEM Board; and

(b) The ERC, (a) Committed such a
breach of the WESM
Within five business days Rules and that the
from issuance of notice. breach cannot be
rectified;
7.2.2.6 The Disputes Resolution
Administrator after (b) Continued to breach
according the parties due the WESM Rules over
process shall determine a period of time; or
whether the WESM
Member in question is (c) Failed to remedy a
in breach of the WESM breach after it has
Rules. been required to do
so,
7.2.2.7 If the Disputes Resolution
Administrator determines the Disputes Resolution
that a WESM Member Administrator may
has indeed breached a recommend to the PEM
WESM Rule, the Disputes Board for approval the
Resolution Administrator suspension of the party in
shall require in writing the breach in accordance with
WESM Member to remedy clause 3.15.7.
the breach within a
reasonable period of time; 7.2.2.9 If the breach is of such a
Provided that, the period nature that payment of
to remedy, as determined compensation to affected
by the Disputes Resolution parties is required, the
Administrator, shall take Market Operator on
in consideration all the behalf of the affected
attendant circumstances party may make a demand
surrounding the breach for payment under the
including the nature and WESM Rules without
extent of damages or prejudice to the fines and
injuries caused as well as penalties that the ERC
the quickest possible time may impose.
required to correct the
breach. 7.2.3 Alleged Breaches of the WESM
Rules by the Market Operator or
7.2.2.8 The Disputes Resolution System Operator
Administrator may further
recommend to the PEM 7.2.3.1 If a WESM Member has
Board that the WESM reasonable grounds to
Member determined to be believe that the Market
in breach be suspended in Operator or System
accordance with clause Operator is in breach
3.15.7 if the said Member of the WESM Rules, the
has: WESM Member shall
notify in writing the PEM
Board of the breach.

7.2.3.2 If the PEM Board compensation to affected
considers that the Market parties is required, the
Operator or System PEM Board on behalf
Operator has committed of the affected party
a breach of the WESM may make a demand for
Rules, the PEM Board payment from the Market
shall direct the Disputes Operator or the System
Resolution Administrator Operator under the WESM
to investigate the alleged Rules without prejudice
breach as soon as possible. to the fines and penalties
that the ERC may impose.
7.2.3.3 The Disputes Resolution
Administrator shall issue 7.2.3.7 If a breach by the Market
a written notice to the Operator is not rectified
Market Operator or the within a reasonable time
System Operator within from the notice issued
five business days upon under clause 7.2.3.3 or is
receipt of notice from the incapable of rectification,
PEM Board. the PEM Board may file a
formal complaint to the
7.2.3.4 The notice which the ERC.
Disputes Resolution
Administrator is required 7.2.4 Investigations
to issue under clause
7.2.3.3 shall: 7.2.4.1 The Disputes Resolution
Administrator may
(a) Specify the nature request from the WESM
of the breach and Member who is alleged to
the sanctions which be in breach of the WESM
may be imposed if Rules all information
the breach is not relating to the breach.
remedied; and
7.2.4.2 If the Disputes Resolution
(b) Require the Market Administrator makes a
Operator or the request for information
System Operator to under clause 7.2.4.1,
explain in writing the it shall provide to the
alleged breach within WESM Member to whom
a reasonable period the request is made the
of time. reasons for the request.
7.2.3.5 The notice issued under 7.2.4.3 If a WESM Member

clause 7.2.3.3 shall be fails to comply with a
copy furnished to: directive or request by
the Disputes Resolution
(a) The PEM Board; and Administrator for
(b) The ERC. information under clause
7.2.4.1, the Disputes
7.2.3.6 If the breach is of such a Resolution Administrator
nature that payment of may request the Market
Surveillance Committee 7.2.5 Sanctions
to investigate the matter
and to prepare a report or 7.2.5.1 The ERC shall have the
such other documentation original and exclusive
as the Disputes Resolution jurisdiction over all cases
Administrator may contesting rates, fees, fines
determine. and penalties imposed by
the ERC in the exercise of
7.2.4.4 A WESM Member shall its powers, functions and
cooperate with the responsibilities, and over
Market Surveillance all cases involving disputes
Committee to undertake between and among
the investigation and to participants or players in
prepare the report or the energy sector.
other documentation
under clause 7.2.4.3 and 7.2.5.2 In line with the principles
shall, at the request of stated in clause 7.1,
the Market Surveillance the PEM Board may
Committee, use its best impose sanctions on
endeavors to ensure any participant of the
that third parties make WESM for breach of any
available such information provision of the WESM
as the person may Rules; Provided that this
reasonably be required is without prejudice to
for the purpose of the the authority of ERC to
investigation. impose fines and penalties
pursuant to Section 46 of
7.2.4.5 In the event that an the Act.
alleged breach exists,
the participant in breach 7.2.6 Actions by Agents, Employees or
shall bear the cost of Officers of Participants
the investigation and
preparation of the report The act of omission of any partner,
or other documentation agent, officer, employee or any
under clause 7.2.4.3. person acting for or in behalf of
a WESM Member or the Market
7.2.4.6 Any report or other Operator, constituting a breach
documentation referred of the WESM Rules, shall be
to in this clause 7.2.4 may considered the act or omission of
be used in any proceeding the WESM Member.
under or in relation to the
WESM Rules or for the 7.2.7 Publication
purpose of commencing
any such proceeding. Subject to clause 5.3, the Dispute
Resolution Administrator shall
7.2.4.7 All information provided publish a monthly report setting out
under this clause 7.2.4 a summary for the period covered
shall be treated in by the report of all actions and
accordance with clause rulings made during that period in
5.3. relation to the enforcement of the
WESM Rules. that contract provides
that the dispute
7.3 DISPUTE RESOLUTION resolution procedures
under the WESM
7.3.1 Application and Guiding Principles Rules are to apply to
any dispute under
7.3.1.1 The dispute resolution or in relation to that
procedures set out in contract with respect
this clause 7.3 apply to to the application of
all disputes which may the WESM Rules; or
arise between any of the
following: (i) A dispute under or in
relation to the Grid
(a) The Market Operator; Code, Distribution
Code or other rules
(b) The System Operator; and regulations issued
by the ERC and DOE
(c) The PEM Board under the Act, where
and its Working such industry code or
Groups except the rules and regulations
Dispute Resolution provide that the
Administrator; dispute resolution
procedures under the
(d) WESM Members; WESM Rules are to
apply to any dispute
(e) Intending WESM under or in relation to
Members; and that industry code or
rules and regulations;
(f) Persons who have or
been notified by the
Market Operator (j) The failure of an entity
under clause 2.4.6.2 or entities referred
that an application to in clauses 7.3.1.1
for registration as a (a) to (e) to act or
WESM Member has behave in a manner
been unsuccessful, consistent with the
WESM Rules; or
as to:
(k) An obligation to settle
(g) The application or payment under the
interpretation of the WESM Rules; or
WESM Rules; or
(l) The failure of a
(h) A dispute under or in person referred to in
relation to a contract clause 7.3.1.1 (f) to
between two or more become registered
persons or entities as a WESM Member
referred to in clauses under chapter 2.
7.3.1.1 (a) to (f) where

7.3.1.2 For the avoidance of (d) Take account of the
doubt, the dispute skills and knowledge
resolution procedures set that are required for
out in this clause 7.3 apply the relevant dispute
to disputes between two or issue;
or more entities from
and within each of the (e) Observe the rules of
categories set out in law;
clauses 7.3.1.1(a) to (e)
and (f) as appropriate. (f) Place emphasis on
conflict avoidance;
7.3.1.3 Where a dispute of a and
kind set out in clause
7.3.1.1 arises, the parties (g) Encourage resolution
concerned shall comply of disputes without
with the procedures set formal legal
out in clauses 7.3.2 to representation or
7.3.14 before pursuing any reliance on legal
other dispute resolution procedures.
mechanism, including but
not limited to court action 7.3.2 Appointment of Dispute Resolution
in relation to the dispute. Administrator and Panel Group
7.3.1.4 WESM Members shall 7.3.2.1 The PEM Board shall

comply with the dispute appoint a person to act
resolution process of the as the Dispute Resolution
WESM Rules before filing Administrator.
a formal complaint to the
ERC. 7.3.2.2 The Dispute Resolution
Administrator shall:
7.3.1.5 It is intended that the
dispute resolution regime (a)
Have a detailed
set out in, or implemented understanding
in compliance with, and experience of
the WESM Rules and alternative dispute
described in detail in resolution practice
clause 7.3 should to the and procedures
extent possible: which do not involve
litigation;
(a) Be guided by the
objectives set out in (b) Have the capacity
clause 1.2.2; to determine the
most appropriate
(b) Be simple, quick and alternative dispute
inexpensive; resolution procedures
in particular
(c) Preserve or enhance circumstances;
the relationship
between the parties (c) Have an
to the dispute; understanding of the
electricity industry; panel can be selected in
(d)
Has not been 7.3.5.1.
employed by any
electric power 7.3.2.5 For the avoidance of
industry participant, doubt, the dispute
or a company or resolution group selected
body related to or under clause 7.3.2.4
associated with a may include any person
WESM Participant at the Dispute Resolution
least one year before Administrator considers to
appointment; and be appropriately qualified
in accordance with clause
(e) Agrees not to be 7.3.2.7.
employed by and
does not accept 7.3.2.6 Each person appointed
employment with to the dispute resolution
any electric power group under clause
industry participant, 7.3.2.4:
or a company or
body related to or (a)
Is appointed for
associated with a one year and is
WESM Member within then eligible for
one year after the reappointment;
person ceases to be
a Dispute Resolution (b) Is appointed on such
Administrator. other terms and
conditions as the
7.3.2.3 If the Dispute Resolution Dispute Resolution
Administrator does not, in Administrator
the reasonable opinion of determines; and
the PEM Board, continue
to meet the requirements (c) Shall be approved by
of clause 7.3.2.2, the PEM the PEM Board.
Board may terminate
the appointment of 7.3.3 Dispute Management Systems
the Dispute Resolution
Administrator and select All of the parties which are listed
a replacement Dispute in clauses 7.3.1.1 (a) to (e) shall
Resolution Administrator implement and adopt a dispute
who meets the management system which is
requirements set out in approved by the PEM Board.
clause 7.3.2.2.
7.3.4 Dispute Resolution Process
7.3.2.4 The Dispute Resolution
Administrator, shall select 7.3.4.1 If a dispute arises to which
at least seven persons the dispute resolution
to constitute the dispute procedures under this
resolution group from clause 7.3 apply, the
which a dispute resolution parties to the dispute shall
act in good faith and use undertaken
all reasonable endeavors pursuant to the
to resolve the dispute WESM Rules in
through the procedures respect of the
and alternative dispute dispute; and
mechanisms which are (4) The listing of
available to the parties all unresolved
through their dispute issues and detail
management system. description
thereof.
7.3.4.2 If the parties to the dispute
are unable to resolve the 7.3.4.4 If the Dispute Resolution
dispute in accordance Administrator receives a
with clause 7.3.4.1, any notice of a dispute under
party who is involved in clause 7.3.4.3, the Dispute
the dispute can refer the Resolution Administrator
dispute to the Dispute shall notify all other
Resolution Administrator relevant parties of the
in accordance with clause dispute and shall request
7.3.4.3. from those other parties
their own short written
7.3.4.3 If a party wishes to refer history of the dispute or
a dispute to the Dispute any relevant associated
Resolution Administrator written comments and
under clause 7.3.4.2, that if the Dispute Resolution
party shall notify in writing Administrator requests
the Dispute Resolution such information from
Administrator and all of a party to the dispute,
the other parties to the that information shall be
dispute of which the party provided by that party
is aware: within ten business days.
(a) Of the existence of a 7.3.4.5 If a matter has been

dispute; and referred to the Dispute
Resolution Administrator
(b) Setting out a brief under clause 7.3.4.2,
history of the dispute then before taking any
including: action to resolve the
dispute, the Dispute
(1) The names of Resolution Administrator
the parties to the shall determine whether
dispute; it is reasonable that the
dispute is one to which
(2) The grounds of this clause 7.3 applies and
the dispute; and shall advise the parties in
writing of its decision.
(3) The results of any
previous dispute 7.3.4.6 If the Dispute Resolution
resolution Administrator is not
p ro c e s s e s reasonably satisfied that
the dispute is one to which refers a dispute for
clause 7.3.1.1 applies, resolution to a dispute
the procedures set out resolution panel under
in clause 7.3.4.7 do not clause 7.3.4.7, the Dispute
apply to the dispute. Resolution Administrator
shall:
7.3.4.7 If the Dispute Resolution
Administrator is (a) Appoint a dispute
reasonably satisfied that resolution panel
the dispute is one to which consisting of three
clause 7.3.1.1 applies, people chosen by the
the Dispute Resolution Dispute Resolution
Administrator shall: Administrator
as appropriate
(a) Appoint a dispute in the particular
resolution panel in circumstances of
accordance with the dispute from the
clause 7.3.5; and dispute resolution
group selected by the
(b)
Refer the dispute Dispute Resolution
for resolution by the Administrator under
dispute resolution clause 7.3.2.4; and
panel appointed
under clause 7.3.5, (b)
Nominate one of
the members of the
within five business dispute resolution
days of receiving any panel to be the
information from the chairperson.
parties to the dispute
under clause 7.3.5.4. 7.3.5.2 Replacement of a Dispute
Resolution Panel Member
7.3.4.8 Subject to all time limits
specified in clause 7.3.5, 7.3.5.2.1 Each party to
nothing in this clause 7.3 a dispute may
precludes the Dispute petition to
Resolution Administrator the Dispute
from facilitating resolution Resolution
of the dispute by Administrator
agreement between the for the
parties to the satisfaction removal of any
of the parties without one person
appointing or involving a appointed to
dispute resolution panel. the Dispute
Resolution
7.3.5 The Dispute Resolution Panel Panel stating
the reasons
7.3.5.1 Subject to clause 7.3.4.8, why that
where the Dispute person should
Resolution Administrator be replaced.

The Dispute (3) Observe the rules
Resolution of law; and
Administrator
may replace (4) E n c o u r a g e
the person in resolution of
question for disputes without
valid reasons. formal legal
representation or
7.3.5.2.1 T h e reliance on legal
replacement(s) procedures.
shall come
from the group 7.3.5.5 The dispute resolution
established in process will take place at a
clause 7.3.2.4. venue determined by the
dispute resolution panel
7.3.5.3 A person who has in consultation with the
previously served on a parties and may include
dispute resolution panel is either party’s premises or
not precluded from being any other premises.
appointed to another
dispute resolution panel 7.3.5.6 The parties shall comply
established in accordance with any procedural
with clause 7.3.5.1. requirements imposed
by the dispute resolution
7.3.5.4 When a matter is referred panel in the resolution of
to a dispute resolution the dispute including a
panel under clause 7.3.4.7 requirement to exchange
(b), the dispute resolution submissions, documents
panel shall select the and information.
form of, and procedures
to apply to, the dispute 7.3.5.7 The dispute resolution
resolution process which: panel shall ensure that the
dispute resolution process
(a) The dispute resolution is completed and that the
panel considers dispute resolution panel
appropriate in the has given notice of its
circumstances; and resolution of the dispute
as soon as practicable
(b) Shall: but in any event within
twenty business days of
(1) Be simple, quick the dispute being referred
and inexpensive; to the dispute resolution
panel (or such longer
(2) Take account period as the Dispute
of the skills Resolution Administrator
and knowledge may permit following a
required for the request by the dispute
relevant dispute; resolution panel for an
extension of time).

7.3.5.8 Within ten business days Where an amount stated to be
of receiving notification payable in a final statement is
from the dispute the subject of a dispute and the
resolution panel of its resolution of the dispute affects
resolution of the dispute, the amount payable, then:
the parties shall provide
written notice to the (a) When the dispute is resolved
dispute resolution panel in accordance with this clause
describing all action taken 7.3, the Market Operator shall
in accordance with the issue a revised final statement
resolution of the dispute to replace each final statement
resolution panel. affected by the resolution of
the dispute, in accordance
7.3.6 Disputes About Payment with clause 3.14.5; and
If a dispute arises between a WESM (b) The amount specified as

Member and the Market Operator payable by a WESM Member
in respect of final statements or in a revised final statement
the supporting data provided with (if any) shall be paid by the
them in accordance with clause relevant WESM Member,
3.14.5, then whether or not that WESM
Member is a party to the
(a) The dispute shall be referred dispute, on the date specified
to the Dispute Resolution in the revised final statement.
Administrator in accordance
with clause 7.3.4.3 within 7.3.8 Legal Representation
twelve months of the dispute
arising; Legal representation before the
dispute resolution panel may be
(b) The Dispute Resolution permitted by the dispute resolution
Administrator shall notify all panel where the dispute resolution
WESM Members who may be panel considers it appropriate or
affected by the resolution of desirable.
the dispute, including but not
limited to WESM Members 7.3.9 Cost of Dispute Resolution
whose final statement may be
amended as a consequence of The reasonable costs of the parties
the resolution of the dispute; to the dispute may be allocated
and by the dispute resolution panel for
payment by one or more parties as
(c) Those payments shall be part of its resolution.
settled without prejudice on
the date specified for payment 7.3.10 Effect of Resolution
in the relevant final statement,
notwithstanding a dispute 7.3.10.1 A resolution of the
regarding the amount. dispute resolution panel
is binding on the parties
7.3.7 Disputes Affecting Final Statements to the dispute, including,
without limitation, any
provision of the resolution
relating to the settlement a dispute, the chairperson
of payment by any of the of the dispute resolution
parties and any provision panel shall send written
as to the performance details of the resolution of
of actions by any of the the dispute to the Dispute
parties. Resolution Administrator,
the PEM Board, the ERC
7.3.10.2
A requirement that a and the Market Operator
party to the dispute settle as soon as practicable.
payment under:
7.3.11.2 Subject to clause 5.3, the
(a) An agreement details and results of each
reached between the dispute which the dispute
parties to a dispute resolution panel resolves
under clause 7.3.4.1; (including the reasons why
or the Dispute Resolution
Administrator decided to
(b) A resolution of the appoint particular people
dispute resolution to the dispute resolution
panel, panel) shall be published
and made available to
is an obligation under WESM Members as soon
the WESM Rules to settle as practicable after the
payments. resolution of the dispute
by the dispute resolution
7.3.10.3 If a resolution of the panel.
dispute resolution panel
applies to a person 7.3.11.3 Claims for confidentiality
referred to in clauses of information disclosed
7.3.1.1(a) to (e) that in the dispute resolution
person shall comply with process shall be dealt with
the resolution of the in accordance with the
dispute resolution panel provisions relating to use
to the extent that the of information in clause
resolution applies to that 5.3.
person, notwithstanding
that the person was not a 7.3.12 Judicial Review
party to the dispute.
Following ERC resolution of the
7.3.10.4 If a party to a dispute dispute, any case which involves
is not satisfied with the question of fact may be appealable
resolution of the dispute to the Court of Appeals and those
resolution panel, the which involves question of law
party may file a formal may be directly appealable to the
complaint to the ERC. Supreme Court.
7.3.11 Recording and Publication 7.3.13 Limitation of Liability
7.3.11.1 When the dispute The Dispute Resolution

resolution panel resolves Administrator, dispute resolution
panel and its members are Upon the actual commercial operation of
not to be liable for any loss or the spot market, changes, amendments,
damage suffered or incurred and modifications of the WESM Rules
by a Participant or any other shall be undertaken in accordance with
person as a consequence of any the provisions of this chapter.
act or omission of those persons
unless the Dispute Resolution This chapter 8 sets out:
Administrator, the dispute
resolution panel, or its members, (a) The composition and manner of
as the case may be, acted with appointment of the Rule Change
malice, manifest impartiality, bad Committee;
faith, gross incompetence or gross
negligence. (b) The procedure for effecting a change
to the WESM Rules; and
7.3.14 Indemnity
(c) The procedure for approval of a
Notwithstanding clause 7.3.13, change to the WESM Rules.
except for liability arising out
of conduct involving malice, 8.2 RULE CHANGE COMMITTEE
manifest impartiality, bad
faith, gross incompetence or 8.2.1 Establishment of Rule Change
gross negligence, if the Dispute Committee
Resolution Administrator, the
dispute resolution panel or the The PEM Board shall establish
members thereof is made liable to a Rule Change Committee in
pay any amount for loss or damage consultation with industry
suffered or incurred by a person participants.
referred to in clauses 7.3.1.1(a)
to (f) or any other person as a 8.2.2 Composition of Rule Change
consequence of any of its acts Committee
or omissions in performance of
dispute resolution, the PEM Board 8.2.2.1 The Rule Change
shall indemnify said persons Committee shall be
through an indemnification comprised in a manner
process to be developed by the that is consistent with
PEM Board. the composition of the
PEM Board except that
(a) For the full amount adjudged; the persons representing
and each of the sectors and
other groups on the Rule
(b) For costs and expenses Change Committee shall
incurred by that person in not be the same persons
defending itself in the related as those who are Directors
proceedings. on the PEM Board.
CHAPTER 8: 8.2.2.2 The principles applicable

RULE CHANGE to the composition and
operation of the PEM
8.1 SCOPE OF CHAPTER 8 Board as set out in
clause 1.4.2 apply also
to the composition and 8.2.6 Resignation
operation of the Rule
Change Committee. A person may resign from the Rule
Change Committee by giving notice
8.2.3 Membership requirements – PEM in writing to the PEM Board.
Board
8.2.7 Conduct of meetings
each member of the Rule Change
Committee shall: The Rule Change Committee shall
meet and regulate its meetings and
(a) Be appointed by the PEM conduct its business in a manner
Board in consultation with which does not conflict with the
industry participants; and WESM Rules.
(b) Not be a member of the PEM 8.2.8 Advice and assistance

Board.
The Rule Change Committee
8.2.4 Termination may obtain such advice or other
assistance as it thinks appropriate
The PEM Board may terminate including, without limitation,
the appointment of any person advice or assistance from persons
appointed to the Rule Change with experience relevant to any
Committee at any time if: change to the WESM Rules which
the Rule Change Committee is
(a) The person becomes insolvent considering and from WESM
or under administration; Members who are likely to be
affected by any change.
(b)
The person becomes of
unsound mind or a person 8.3 REFERRAL OF MATTERS TO THE RULE
whose person or estate is CHANGE COMMITTEE
liable to be dealt with in any
way under a law relating to 8.3.1 Rule change proposals
mental health;
The Market Operator, the
(c) The person resigns or dies; or Government or any WESM Member
and other interested parties may
(d) The person fails to discharge submit proposals for changes to
the obligations of their office. the WESM Rules to the PEM Board.
8.2.5 Appointment termination 8.3.2 Form of submission
If the PEM Board decides to Proposals for a change or changes

terminate a person’s appointment to the WESM Rules shall:
in accordance with clause 8.2.4,
the PEM Board shall appoint (a) Be in writing and addressed to
another representative from the the PEM Board;
same membership category to fill
that person’s place on the Rule (b) Include the name and address
Change Committee within 20 of the applicant;
business days.
(c) Demonstrate that the change 8.4.1 Assessment of proposed Rule
to the WESM Rules is: change
(1) Consistent with the WESM Within 10 business days from the
objectives; referral from the PEM Board, the
Rules Change Committee shall
(2) Feasible; assess whether the proposed
change to the WESM Rules is:
(3) Not unreasonably costly
to implement; and (a) Consistent with the WESM
objectives;
(4) A more appropriate or
better means of achieving (b) Feasible;
the criteria set out in
clauses 8.3.2 (c) (1) to (c) (c) Not unreasonably costly to
(3), where the effect of implement; and
the change to the WESM
Rules will be to replace an (d) A more appropriate or better
existing provision of the means of achieving the criteria
WESM Rules; set out in clauses 8.4.1 (a) to
(c), where the effect of the
(d) Include a brief statement of change to the WESM Rules will
the reasons why a change to be to replace an existing rule.
the WESM Rules is necessary
or desirable; and 8.4.2 Discretions when assessment
proposed Rule change
(e) Contain sufficient information
to permit a proper In considering whether a proposed
consideration by the Rule rule change satisfies the criteria,
Change Committee of those which are set out in clause 8.4.1,
reasons, including the public the Rules Change Committee may:
benefit (if any) of making the
change to the WESM Rules. (a)
Take into account any
information and documents
8.3.3 PEM Board obligations which the Rules Change
Committee reasonably
The PEM Board shall: considers to be relevant to its
consideration of the proposed
(a) Keep a register of all proposals change to the WESM Rules;
for a change in the WESM
Rules submitted to it; and (b) Consult with such persons as
the Rules Change Committee
(b) Give due course to the reasonably considers will be
proposal within 5 business likely to be affected by the
days from receipt thereof. proposed change to the WESM
Rules;
8.4 CONSIDERATION OF PROPOSED RULES
CHANGE BY THE RULES CHANGE (c) Seek such information and
COMMITTEE views from any person in
relation to the proposed
change to the WESM Rules as (b) Invite such parties to make
may be practicable under the written submissions regarding
circumstances; and the proposed change to the
WESM Rules within the next
(d) Refer the proposed change to 30 business days after receipt
the WESM Rules to a working of proposed rule change.
group comprising of persons
having such expertise as the 8.4.5 Submissions regarding proposed
Rules Change Committee in its Rule change
absolute discretion considers
to be reasonable in all the To be validly considered, a written
circumstances for the purpose submission made in response to
of delegating to that working a proposed change to the WESM
group any obligation or task of Rules invited under clause 8.4.4
the Rules Change Committee (b) must be received by the Rules
set out in clauses 8.4.2, 8.4.4 Change Committee no later than
and 8.4.6, other than this 30 business days after the notice
clause 8.4.2 (d). referred to in clause 8.4.4 (a) is
given.
8.4.3 Notification following failure to
satisfy criteria 8.4.6 Consideration of submissions
If the Rules Change Committee The Rules Change Committee shall

concludes that a proposed change consider all valid submissions
to the WESM Rules does not satisfy which it receives within 60 business
the criteria set out in clause 8.4.1, days from the date the notification
the Rules Change Committee shall is given under clause 8.4.4(a).
notify the proponent and the PEM
Board within 10 business days 8.4.7 Approval of proposed Rule change
after receipt of proposal of its non-
adoption of the proposal including If the Rules Change Committee,
the reason for its decision. after having considered all valid
submissions, concludes that it
8.4.4 Notification following satisfying is necessary or desirable to give
criteria effect to the proposed change to
the WESM Rules, the proposed
If the Rules Change Committee change to the WESM Rules shall
concludes that a proposed change be submitted to the PEM Board for
to the WESM Rules satisfies the approval.
criteria which are set out in clause
8.4.1, the Rules Change Committee 8.5 CONSIDERATION OF PROPOSED RULES
shall: CHANGES BY THE PEM BOARD
(a) Notify the PEM Board, all 8.5.1 PEM Board assessment of
WESM Members and all proposed Rule change
other interested parties of
the proposed change to the If the Rules Change Committee
WESM Rules; and submits a proposed change to the
WESM Rules to the PEM Board for
approval in accordance with clause
8.4.7, the PEM Board shall, within criteria set out in clause
10 business days from receipt 8.4.1, the PEM Board shall
thereof, assess whether: notify:
(a) The proposed change to the (a) The Rules Change

WESM Rules satisfies the Committee;
criteria which are set out in
clause 8.4.1; and (b) Any parties who made
written submissions
(b) The processes and procedures to the Rule Change
set out in clause 8.4 have been Committee under
duly followed. clause 8.4.4; and
8.5.2 PEM Board discretions when (c) The DOE and the ERC,
assessing proposed Rule change
within 10 business days of
In considering whether a proposed reaching that conclusion
change to the WESM Rules satisfies and shall provide reasons
the criteria which are set out in for its decision.
clause 8.4.1, the PEM Board may:
8.5.3.2 If the PEM Board
(a)
Take into account any determines that the
information and documents processes and procedures
which the PEM Board set out in clause 8.4 have
reasonably considers to be not been duly followed,
relevant to its consideration the PEM Board shall:
of the proposed change to the
WESM Rules; (a) Refer the proposed
change to the
(b) Consult with such persons as WESM Rules back
the PEM Board reasonably to the Rules Change
considers will be likely to be Committee so that the
affected by the proposed procedural error can
change to the WESM Rules; be rectified within the
and earliest possible time
in accordance with
(c) Seek such information and clause 8.4; and
views from any person in
relation to the proposed (b) Take such steps as it
change to the WESM Rules considers reasonably
as may be practicable in the necessary and
circumstances. appropriate in all
the circumstances
8.5.3 Notification following unsuccessful to ensure that
proposal the Rules Change
Committee adheres
8.5.3.1 If the PEM Board to the processes and
concludes that a proposed procedures set out
change to the WESM in clause 8.4 in the
Rules does not satisfy the future.
8.5.4 Submitting proposed Rule change (c) Seek such information and
for approval views from any person in
relation to the proposed
If the PEM Board concludes that change to the WESM Rules
the proposed change to the WESM as may be practicable in the
Rules satisfies the criteria which circumstances.
are set out in clause 8.4.1 and that
the processes and procedures set 8.6.3 Notification following failure to
out in clause 8.4 have been duly satisfy criteria
followed, the PEM Board shall
submit the proposed change to If the DOE concludes that a
the WESM Rules to the DOE for proposed change to the WESM
approval. Rules does not satisfy the criteria
which are set out in clause 8.4.1,
8.6
APPROVAL OF PROPOSED RULES the DOE, shall notify:
CHANGES
(a) The PEM Board;
8.6.1 DOE assessment of proposed Rule
change (b) The person who proposed the
change to the WESM Rules;
If the PEM Board submits a and
proposed change to the WESM
Rules to the DOE, for approval (c) Any party who made written
in accordance with clause 8.4.4, submissions to the Rules
the DOE shall assess whether the Change Committee under
proposed change to the WESM clause 8.4.4,
Rules satisfies the criteria which
are set out in clause 8.4.1. within 10 business days of reaching
that conclusion and shall provide
8.6.2 DOE discretions when assessing reasons for its decision.
proposed Rule change
8.6.4 Approval of proposed Rule change
In considering whether a proposed
change to the WESM Rules satisfies 8.6.4.1 If the DOE concludes that
the criteria which are set out in a proposed change to the
clause 8.4.1, the DOE, may: WESM Rules is consistent
with the Act and the
(a)
Take into account any public interest and
information and documents satisfies the criteria which
which the DOE, reasonably are set out in clause 8.4.1,
considers to be relevant to its the proposed change to
consideration of the proposed the WESM Rules will take
change to the WESM Rules; effect when the change
to the WESM Rules is
(b) Consult with such persons as published, or on such
the DOE, reasonably considers later date as the DOE,
will be likely to be affected by determines.
the proposed change to the
WESM Rules; and

8.6.4.2 The PEM Board shall the Rules Change Committee,
develop a classification the PEM Board or the DOE in
system of rule change relation to:
proposals that will
delineate proposals (1) The way in which it
requiring DOE review intends to deal with any
and approval vis-à- procedure specified in this
vis proposals that can chapter 8; and
be acted upon at the
PEM Board level. This (2) The facts, matters or
classification shall be circumstances which the
approved by the DOE. Rule Change Committee,
the PEM Board or the DOE
8.6.5 Report by the Rules Change may take into account in
Committee making a decision and
otherwise discharging its
The Rules Change Committee and functions and obligations
the PEM Board shall develop and under this chapter 8,
make available to WESM Members
a periodic report, which sets out: provided that nothing in this
clause 8.6.5 is to be taken to
(a) All WESM Rule change limit the exercise by the Rules
proposals which have been Change Committee, the PEM
made in the previous six Board or the DOE, as the case
month period; may be, of its discretion under
this chapter 8.
(b) The progress of those WESM
Rule change proposals 8.7 RULES CHANGE COMMITTEE INDEMNITY
procedures prescribed in this The Rules Change Committee and its
chapter 8; members, and any working group to
whom any task or obligation is delegated
(c) The reason for any delays in under clause 8.4, are not to be personally
relation to the progress of liable in any way for any change, which is
those WESM Rule change made to the WESM Rules.
proposals and any action the
Rules Change Committee, CHAPTER 9
the PEM Board or the DOE INTERPRETATION
has taken to overcome those
delays; and 9.1 GENERAL
(d) Any other matter which the In the WESM Rules, unless the context
Rules Change Committee, otherwise requires:
the PEM Board or the DOE
reasonably considers to be (a) Headings are for convenience only
relevant to the progress of and do not affect the interpretation
WESM Rule change proposals, of the WESM Rules;
including but not limited to
any policies developed by

(b) Words importing the singular include or supplement to, or replacement or
the plural and vice versa; novation of, the WESM Rules or that
document or that provision of that
(c) Words importing a gender include document;
any gender;
(k) A reference to a person includes that
(d) Where italicized, a word or phrase person’s executors, administrators,
has the definition given to that word successors, substitutes (including,
or phrase in chapter 10; without limitation, persons taking by
novation) and permitted assignees;
(e)
Other parts of speech and
grammatical forms of a word or (l) A reference to a body other than
phrase defined in the WESM Rules a WESM Member or the Market
have a corresponding meaning; Operator (including, without
limitation, an institute, association or
(f) An expression importing a natural authority), whether statutory or not:
person includes any legal entity,
company, partnership, joint venture, (1) Which ceases to exist; or
association, corporation or other
body corporate and any government (2) Whose powers or functions are
authority; transferred to another body,
(g) A reference to any thing (including, is a reference to the body which

but not limited to, any right) includes replaces it or which substantially
a part of that thing; succeeds to its powers or functions;
and
(h) A reference to a clause, paragraph,
part, annexure, exhibit or schedule is (m) A reference in the context of any
a reference to a clause and paragraph provision of the WESM Rules to a
and part of, and an annexure, exhibit “representative” of any person is
and schedule to the WESM Rules a reference to any director, officer
and a reference to the WESM Rules or employee of that person or any
includes any annexure, exhibit and agent, consultant or contractor
schedule; appointed or engaged by that
person for purposes connected with
(i) A reference to a statute, regulation, the subject matter of the relevant
proclamation, order in council, provision of the WESM Rules.
ordinance or by-law includes all
statutes, regulations, proclamations, 9.2 TIME AND DATES
orders in council, ordinances or
by-laws amending, consolidating 9.2.1.1 Unless the context otherwise
or replacing it, and a reference to requires, a reference in the WESM
a statute includes all regulations, Rules:
proclamations, orders in council,
ordinances, and by-laws issued (a) To a calendar day (such as 1
under that statute; January) or a day of the week
(such as Sunday) is to the day
(j) A reference to the WESM Rules or which begins at 00:00 hours
to a document or a provision of a on that day;
document includes an amendment
(b) To a week is to the period from information shall be given as soon
00:00 hours on a day until as possible and no later than the
00:00 hours on the seventh date or time given.
day following;
9.3 ASSIGNMENT
(c) To a month (or a number of
months) or a calendar month is Unless otherwise expressly permitted
to the period from 00:00 hours by the WESM Rules, a WESM Member
on a day in one month until shall not assign or transfer and shall not
00:00 hours on the same day purport to assign or transfer any of its
of the month which follows rights or obligations under the WESM
(or follows by the relevant Rules.
number of months), or if there
is no such day in that month, 9.4 WAIVER
00:00 hours on the first day of
the next following month; A person does not waive its rights,
powers and discretions under the WESM
(d) To a year is to the period from Rules by:
00:00 hours on a day in one
year until 00:00 hours on the (a) Failing to exercise its rights;
same day (or where the day in (b) Only exercising part of its rights; or
the first year was 29 February, (c) Delaying the exercise of its rights.
on 1 March) in the following
year, and a reference to a 9.5 PAYMENT
calendar year (such as 1997)
is to be construed accordingly; 9.5.1 Method of payment
and
Unless otherwise provided in the
(e) To times of the day are to WESM Rules, any payment to
Philippines standard time. be made under the WESM Rules
shall be made either by the EFT
9.2.1.2 Unless the context otherwise facility or in cash or by a draft or
requires, a period of time: check drawn by a bank as defined
in legislation applicable to the
(a) Which dates from a given day conduct of banking activities in the
or the day of an act or event Philippines.
is to be calculated exclusive of
that day; or 9.5.2 Interest rates
(b) Which commences on a given Unless the context otherwise

day or the day of an act or requires, a reference in the WESM
event is to be calculated Rules to an interest rate published
inclusive of that day. in respect of a specified day shall, if
that interest rate is not published,
9.2.1.3 Where under any provision of the authorized or otherwise available
WESM Rules a person is required in respect of that day, be taken
to provide any information by a to be the relevant interest rate
certain date or time, the relevant published immediately prior
provision is to be taken to include a to that day; and if that interest
requirement that that the relevant rate is suspended, modified,
discontinued, or its method of by letter or facsimile to the
calculation substantially alters or if person on the same day; or
the relevant publication ceases to
publish that interest rate for more (d) The person actually receives
than seven consecutive days, the the notice by any other means.
Market Operator shall provide a
substitute rate of interest that in 9.6.2 Notices treated as being given
the Market Operator’s reasonable
opinion is the nearest equivalent A notice is treated as being given
to the interest rate and that to a person by the sender:
substitute rate of interest shall be
taken to be the applicable interest (a) Where sent by registered mail
rate. to an address in the central
business district of a region in
9.6 NOTICES the Philippines, on the second
business day after the day on
9.6.1 Properly giving notices which it is posted;
A notice is properly given under (b) Where sent by post in

the WESM Rules to a person if: accordance with clause
9.6.1(b) to any other address,
(a) It is personally served; on the third business day after
the day on which it is posted;
(b) A letter containing the notice
is sent by registered mail to (c) Where sent by facsimile
the person at an address (if in accordance with clause
any) supplied by the person 9.6.1(c) and a complete and
to the sender for service of correct transmission report is
notices or, where the person is received:
a WESM Member, an address
shown for that person in the (1) Where the notice is of the
register of WESM Members type in relation to which
maintained by the Market the addressee is obliged
Operator, or, where the under the WESM Rules
addressee is the Market to monitor the receipt by
Operator, the registered office facsimile outside of, as
of the Market Operator; well as during, business
hours, on the day of
(c) It is sent to the person by transmission; and
facsimile or electronic mail
to a number or reference (2) In all other cases, on the
which corresponds with the day of transmission if a
address referred to in clause business day or, if the
9.6.1(b) or which is supplied transmission is on a day
by the person to the Market which is not a business
Operator for service of notices day or is after 4.00 pm
and, if sent by electronic mail, (addressee’s time), at
the person sending the notice 9.00 am on the following
also sends a copy of the notice business day;

(d) Where sent by electronic mail 9.6.4 Calculating a specified period for
in accordance with clause notices
9.6.1(c):
Where a specified period
(1) Where the notice is of a (including, without limitation,
type in relation to which a particular number of days)
the addressee is obliged is provided, for purposes of
under the WESM Rules calculating the number of days
to monitor receipt by indicated in the period, the first day
electronic mail outside of, shall be excluded while the last day
as well as during, business is included in said computation.
hours, on the day when
the notice is recorded as 9.6.5 General
having been first received
at the electronic mail In this clause 9.6, a reference to:
destination; and
(a) An addressee includes a
(2) In all other cases, on reference to an addressee’s
the day when the notice officers, agents, or employees
is recorded as having or any person reasonably
been first received at believed by the sender to be
the electronic mail an officer, agent or employee
destination, if a business of the addressee; and
day or if that time is after
4.00 pm (addressee’s (b) A notice includes any request,
time), or the day is not a demand, consent or approval
business day, at 9.00 am or other communication to or
on the following business by a person under the WESM
day; or Rules.
(e) In any other case, when the 9.7

RETENTION OF RECORDS AND
person actually receives the DOCUMENTS
notice.
Unless otherwise specified in the
9.6.3 Form of notice WESM Rules, all records and documents
prepared for or in connection with the
Any notice to or by a person under WESM Rules shall be retained for a period
the WESM Rules: of at least seven years.
(a) Shall be in legible writing and 9.8 SEVERABILITY

in English; and
Each part or all of a provision of the
(b) Where the sender is a WESM Rules:
company, shall be signed by
a responsible employee or (a) Will be construed so as to be valid
officer thereof or under the and enforceable to the greatest
corporate or official seal of extent possible; and
the sender (except where the
notice is sent by electronic (b) May be so construed (or deleted if
mail). necessary) regardless of the effect
which that may have on the provision under contracts between
in question or any other provision or sellers and purchasers of
the WESM Rules as a whole. electricity.
CHAPTER 10 10.2.1.2 The DOE shall constitute

TRANSITORY PROVISIONS the Autonomous Group
Market Operator
10.1 PURPOSE AND SCOPE (“AGMO”), initially
under the administrative
10.1.1 Purpose supervision of the
TRANSCO.
To provide guidelines for the
transition of the electric power 10.2.2 The Market Operator
industry from the existing structure
to the new structure as specified in 10.2.2.1 The WESM shall be
the Act; primarily operated by a
Market Operator subject
10.1.2 Scope of Application to the overall supervision
of the PEM Board and
This Chapter applies to the in accordance with the
following: WESM Rules.
(a) Market Operator; 10.2.2.2 The AGMO shall undertake

(b) System Operator; the preparatory work,
(c) Generation Companies; and initial operation of
(d) Ancillary Services Provider; the WESM for a period
(e) Distribution Utilities; of twelve months
(f) Suppliers; from the spot market
(g) Metering Services Providers; commencement date
(h) Bulk Users/End-users; and and, for the avoidance
(i) Other similar entities of doubt, during that
authorized by the ERC to initial twelve-month
become members of the period, all references
WESM. in the WESM Rules to
“Market Operator” shall
10.2 MARKET TRANSITION be construed to mean
“AGMO”.
10.2.1
Establishment of the Wholesale
Electricity Spot Market 10.2.2.3
Not later than one
(1) year after the
10.2.1.1 Within one (1) year from implementation of the
the effectivity of the Act, WESM, an Independent
the DOE shall establish a Market Operator (“IMO”)
WESM composed of the shall be formed and the
WESM participants. The functions, assets and
market shall provide the liabilities of the AGMO
mechanism for identifying shall be transferred to
and setting the price of such entity with the joint
actual variations from endorsement of the DOE
the quantities transacted and the electric power
industry participants. or indirectly, of the WESM.
Thereafter, the
administrative supervision 10.2.4.2 A Generation Company
of the TRANSCO over such shall comply with the
entity shall cease. membership criteria as
prescribed under the
10.2.3 The Governing Board WESM Rules as set forth
in Rule 9 of the IRR of the
10.2.3.1 The WESM shall be Act on WESM.
governed, and its powers
and functions exercised 10.2.4.3 Pursuant to Section 9 (e)
by a governing body with of the Act, a Generation
equitable representation Company with facilities
from electric power connected to a Grid
industry participants. shall make information
The representatives of available to the Market
the AGMO governing Operator to enable
body shall be selected, the Market Operator
in accordance with the to implement the
WESM Rules. The DOE appropriate dispatch
Secretary shall chair the scheduling and shall
AGMO governing board. comply with the said
scheduling in accordance
10.2.3.2 The AGMO governing with the WESM Rules. A
board shall govern the Generation Company shall
operation of the AGMO likewise make information
until the formation or available to the System
selection of an IMO. Until Operator to facilitate
such time, all references central dispatch by the
in the WESM Rules to System Operator.
“PEM Board” shall be
construed to mean 10.2.4.4 For the first five (5) years
“AGMO governing board”. from the establishment of
the WESM, Distribution
10.2.4 Membership to the WESM Utilities shall source at
least ten percent (10%)
10.2.4.1
Subject to compliance of its total demand from
with the membership the spot market. For this
criteria, all Generating purpose, each Distribution
Companies, Distribution Utility may submit a
Utilities, Suppliers, Bulk demand bid corresponding
co n s u m e rs / E n d - u s e rs to a load which has been
and Other Similar Entities certified as dispatchable
authorized by the ERC in accordance with the
shall be eligible to become Grid Code and Distribution
members of the WESM. Code.
The ERC may authorize
other similar entities 10.2.4.5 NEA may, in exchange for
to become eligible as adequate security and a
members, either directly guarantee fee, act as a
guarantor for purchases of of ancillary services;
electricity in the WESM by or
any Electric Cooperative
or small Distribution (b) By negotiating
Utility to support their contracts directly
credit standing consistent with an Ancillary
with the provision hereof. Services Provider
who is a Direct WESM
10.2.5 Price Determination Methodology Member, where only
one Ancillary Services
The price determination Provider can provide
methodology contained in the the required ancillary
WESM Rules shall be subject to the services; or
approval of ERC.
(c) Where applicable,
10.3 PROVISIONS FOR THE INTERIM WESM by competitive spot
market trading in
The following provisions shall be accordance with
applicable during the operation of the clause 3.3.4.
interim WESM.
10.3.2.2
The reserve trading
10.3.1 Spot Market Trading amount shall be based
on the cost of reserves
10.3.1.1 Initially, only energy contracted for by the
shall be traded upon System Operator.
commencement of the
interim WESM. 10.3.2.3
When applicable and
reasonably feasible,
10.3.1.2 The composition of the the Market Operator
market network model shall establish a spot
may be limited in scope market mechanism for
during the operation of competitive spot market
the interim WESM. trading in the purchase of
certain reserve categories.
10.3.2 Ancillary Services The DOE shall declare the
commencement of the
10.3.2.1 The System Operator shall spot market for ancillary
arrange for the provision services.
of adequate ancillary
services for each region 10.3.3 Market Dispatch Optimization
either: Model
(a) By competitive The interim market dispatch

tendering process, model is of lesser scope than the
administered by the final market optimization model
Market Operator, and determines dispatch targets
whereby a number for the end of a trading interval,
of Ancillary Services reserve allocations for the trading
Providers can provide interval, associated energy prices
a particular category at all trading nodes in the power
system, and reserve prices for all The following
reserve regions. requirements may
be relaxed during the
10.3.4 Metering operation of the interim
WESM:
10.3.4.1 The installation and
maintenance of metering (a) Facilities to enable
installations shall initially metering data to
be carried out by the be transmitted
TRANSCO. from the metering
installation to the
10.3.4.2 A Trading Participant who metering database,
is a direct WESM member and be capable of
shall: communication
with the metering
(a)
Arrange with the database; and
TRANSCO for the
provision, installation (b) A d e q u a t e
and maintenance communication
of each metering facility that will
installation for enable the Market
which that Trading Operator to obtain
P a r t i c i p a n t remote access to
is financially the metering data
responsible; from, the metering
database.
(b)
Enter into an
agreement with the 10.4 ACTIONS TO BE TAKEN PRIOR TO SPOT
TRANSCO for the MARKET COMMENCEMENT DATE
provision, installation
and maintenance of 10.4.1 Significant Variations
the relevant metering
installation by the The Market Operator shall,
TRANSCO; and in consultation with WESM
Participants, develop guidelines
(c) Provide the Market as to what constitutes a significant
Operator with the variation in and between trading
relevant details of the intervals subject to the approval of
metering installation the PEM Board.
in accordance with
Appendix B2 within 10.4.2 Market Operator Performance
ten (10) business
days of entering into 10.4.2.1 Prior to the spot market
an agreement with commencement date, the
the TRANSCO under Market Operator shall
clause 4.3.4 (b). develop performance
indicators which provide
10.3.4.3 Metering Installation an indication of, and
Components monitor, the Market
Operator’s performance
under the WESM Rules in (e) Disclosure of information
respect of: by and between Directors
appointed to the PEM Board;
(a) The Market Operator’s
responsibilities under (f)
Detailed procedures for
the WESM Rules; and voting;
(b) The achievement of (g) Formulation of a budget for

the WESM objectives the PEM Board;
as defined in clause
1.2.5. (h)
Appointment of a Chief
Executive Officer or General
10.4.2.2 The performance Manager to conduct the daily
indicators developed business of the PEM Board, if
under clause 10.4.2.1 necessary and appropriate;
shall be approved by the
PEM Board. (i) Procedure to be followed by
the PEM Board for amending
10.4.3 Formulation of PEM Board By-law its own by-law; and
Prior to the spot market (j) Any other matter considered

commencement date and, if relevant by the DOE.
applicable, subject always to any
relevant law or regulation of the 10.4.4 Determination of Market Network
Philippines in relation to processes Model
and procedures of corporate
entities or the formulation of 10.4.4.1 Prior to the spot market
corporate constitutions, the DOE commencement date,
shall formulate the by-law of the the Market Operator, in
PEM Board which shall set out, consultation with WESM
among others, the following: Participants and the
System Operator shall:
(a) Conduct of meetings,
including but not limited to (a) In accordance with
the frequency of meetings, the clauses 3.2.1.2 and
quorum required to conduct a 3.2.1.3, recommend
meeting, the manner in which the composition of
a meeting may be conducted the market network
and the location of meetings; model;
(b) Appointments on the PEM (b)

Seek approval of
Board; the market network
model from the PEM
(c) Tenure of Directors appointed Board; and
to the PEM Board;
(c) Publish details of
(d) Allowance, if any, to be made the market network
to Directors appointed to the model, once
PEM Board; approved.

10.4.5 Determination of Market Trading customer pricing
Nodes zone;
10.4.5.1 Prior to the spot market (d) Submit to the PEM

commencement date, the Board for approval
Market Operator shall, in relevant details of
accordance with clauses all customer pricing
3.2.2.1, 3.2.2.2 and zones, allocation of
3.2.2.3, determine the market trading nodes
identity of each market to each customer
trading node for trading pricing zone and price
and settlement purposes. calculation formula;
and
10.4.5.2 Prior to the spot market
commencement date, (e) After obtaining the
the Market Operator approval of the PEM
shall publish a register of Board under clause
market trading nodes and 10.4.6.1 (d) publish
of the Trading Participant the following:
responsible for each.
(1) Customer pricing
10.4.6 Determination of Customer Pricing zones; and
Zones
(2) Allocation of
10.4.6.1 Prior to the spot market market trading
commencement date, the nodes.
Market Operator shall:
10.4.6.2 The PEM Board shall
(a) Partition the set develop and thereafter
of customer nodes shall publish guidelines
into pricing zones regarding:
for Customers, to
be called customer (a) The allocation of
pricing zones; market trading nodes
to customer pricing
(b) Determine formula zones; and
to calculate ex ante
zonal energy prices (b) Any other matter
and ex post zonal relevant to pricing
energy prices as the zones.
appropriate load-
weighted averages of 10.4.7 Ancillary Services
nodal energy prices
for nodes within each 10.4.7.1 Ancillary Services
customer pricing Agreements
zone;
10.4.7.1.1The System
(c) Determine the nature Operator shall,
of information to be prior to the
published for each spot market
commencement categories;
date and in
consultation (3) R e s e r v e
with the Market f a c i l i t y
Operator, categories;
d e v e l o p
and publish (4) R e s e r v e
procedures in effectiveness
relation to any factors;
competitive
tendering (5) R e s e r v e
process for regions;
a n c i l l a r y
services, or any (6) R e s e r v e
other procedure cost recovery
which the zones; and
System Operator
plans to develop (7) A n c i l l a r y
for the provision service cost
of ancillary recovery
services. formula to be
developed in
10.4.7.1.2
Prior to the accordance
spot market with the
commencement principles set
date, the System out in clause
Operator shall: 3.3.5.4;
(a) I n (b) Submit to the

consultation PEM Board to
with the endorse to the
M a r k e t ERC for approval
Operator relevant details
and WESM of each of the
Participants, matters set
develop: out in clause
10.4.7.1.2(a); and
(1) A n c i l l a r y
s e r v i c e (c) After obtaining
arrangements the approval of
and interim the ERC under
m a r k e t clause 10.4.7.1.2
contract (b) publish the
requirements; following:
(2) A n c i l l a r y (1) A n c i l l a r y
s e r v i c e s e r v i c e
categories arrangements
including and ancillary
r e s e r v e s e r v i c e
categories (c) The criteria
including to be satisfied
r e s e r v e by various
categories, r e s e r v e
(2) Reserve cost f a c i l i t y
recovery categories
zones; offering
reserve to
(8) Allocation meet those
of market requirements,
trading nodes in accordance
to reserve with the Grid
cost recovery Code and
zones; and Distribution
Code.
(9) R e s e r v e
cost recovery 10.4.7.3 The System Operator,
formula. in consultation with the
Market Operator, shall:
10.4.7.2 Reserve Market
Arrangements (a) Establish locationally
specific requirements
10.4.7.2.1 W h e n for each reserve
reasonably category;
feasible,
the Market (b) Specify reserve
Operator, in effectiveness factors
consultation for each reserve
with the facility category;
S y s t e m
Operator, (c) Establish reserve
shall establish regions within which
a market for reserve offers may
the purchase be accepted to meet
of certain each such locationally
r e s e r v e specific requirement;
categories.
(d) Determine a
10.4.7.2.1 The System corresponding set of
Operator shall locationally specific
define: reserve requirements
constraints to be
(a) R e s e r v e incorporated into the
categories; dispatch optimization;
and
(b) G e n e r a l
requirements (e) Establish reserve cost
relating to recovery zones within
each reserve which reserve cost
category; and recovery charges may
be recovered to meet 10.4.10 Market Dispatch Optimization
each locationally Model
specific requirement.
10.4.10.1 Prior to the spot market
10.4.7.4 The Market Operator commencement date, the
shall: Market Operator shall
develop the formulation
(a)
Declare the form of the market dispatch
in which reserve optimization model to be
offers for each used for the purposes of
reserve category will central scheduling and
be accepted from dispatch, and pricing in
various reserve facility accordance with clauses
categories; and 3.8 and 3.10.
(b) Determine the 10.4.10.2 Prior to the spot market

frequency with which, commencement date, the
and a process by Market Operator shall
which, reserve offers develop performance
may be updated. standards, including
standards for reliability
10.4.8 Timetable and processing time,
which shall be met by
10.4.8.1 Prior to the spot market the market dispatch
commencement date, optimization model, once
the Market Operator, implemented.
in consultation with the
System Operator and 10.4.10.3 The formulation of
WESM Participants, shall the market dispatch
develop a timetable for optimization model
operation of the spot developed under clause
market. 10.4.10.1 and the
performance standards
10.4.8.2 The Market Operator shall developed under clause
publish the timetable 10.4.10.2 are to be
subject to the approval of approved by the PEM
the PEM Board. Board, having been
certified as compliant
10.4.9 Load Forecasting with the WESM Rules by
an independent reviewer
Prior to the spot market appointed by the PEM
commencement date, the Market Board.
Operator shall, in consultation
with the System Operator and 10.4.10.4 The Market Operator
with the approval of the PEM shall publish details of
Board, develop procedures for the market dispatch
preparation of net load forecasts optimization model
as required by clause 3.5.4. once approved by the
PEM Board under clause
10.4.10.4.
10.4.11Constraint Violation Coefficients Prior to the spot market
commencement date, the
10.4.11.1 Prior to the spot market System Operator and the Market
commencement date, Operator, in consultation with
the Market Operator WESM Participants, and subject
shall develop and publish to approval by the PEM Board,
constraint violation shall develop and publish detailed
coefficients or procedures procedures for the management of
for calculating constraint all aspects of dispatch and pricing
violation coefficients for during periods when load shedding
each constraint detailed in is required under clause 3.9.7.
clause 3.6.1.4, to be used
in the market dispatch 10.4.14 Management Procedures for
optimization model. Excess Generation
10.4.11.2 The constraint violation Prior to the spot market

coefficients shall be: commencement date, the
System Operator and the Market
(a) Developed in Operator, in consultation with
consultation with WESM Participants, and subject
WESM Participants; to approval by the PEM Board,
shall each develop and publish
(b) Appropriate for the procedures which they plan
and commensurate to adopt with respect to the
with the particular management of all aspects of
constraint to which it dispatch and pricing should it be
is to be applied; and necessary to shut down generating
systems under clause 3.9.8.1.
(c) Approved by the PEM
Board. 10.4.15 Management Procedures for
Excess Generation
10.4.12 Dispatch Tolerances
Prior to the spot market commencement date, the
commencement date, the Market System Operator and the Market
Operator shall, subject to PEM Operator, in consultation with
Board approval, develop guidelines WESM Participants, and subject
on dispatch tolerances for each to approval by the PEM Board,
type of plant, and location, taking shall each develop and publish
into account plant characteristics, the procedures which they
local network conditions and any plan to adopt with respect to
other matter considered relevant the management of all aspects
for purposes of scheduling and of dispatch and pricing should
dispatch, and in accordance with it be necessary to shut down
the Grid Code and Distribution generating systems in the event
Code the dispatch optimization, or any
market projection, indicate excess
10.4.13 Management Procedures During generation at any node.
Load Shedding

10.4.16 Procedures for Ex-Post Nodal 10.4.18 Harmonization
Energy Price
Harmonization of WESM Rules with
Prior to the spot market the Grid Code, Distribution Code
commencement date, the Market and other rules and regulations
Operator, in consultation with issued by the DOE and ERC shall be
WESM Participants, and subject to undertaken upon promulgation of
approval by the PEM Board, shall these Rules.
develop and publish the procedures
to be employed in clauses 3.10.6 10.4.19 The Technical Working Group
(d) and (e) in establishing the (TWG)
network configuration and other
constraints to be assumed for the 10.4.19.1 Creation of the TWG
determination of ex-post nodal
energy prices for circumstances The DOE shall create
in which power system conditions and chair a Technical
materially change during the Working Group (“TWG”)
trading interval, with a view to to be composed of the
ensuring that: Government and industry
participants immediately
(a) Consistency is maintained after the promulgation
between the market network of these Rules. Industry
configuration and state Participants, for purposes
determined in accordance of this clause, shall be
with clause 3.10.6 (d), any composed of individual
constraints determined in representatives coming
accordance with clause 3.10.6 from:
(e) and the unrestrained net
loads measured or estimated (1) P h i l i p p i n e
for each market network node Independent
in accordance with clause Power Producers’
3.10.6 (c); and Association (PIPPA);
(b) The ex-post prices produced in (2) Private Electric Plant

accordance with clause 3.10.6, Owners Association
properly and fairly represent (PEPOA);
average conditions over the
trading interval. (3) Philippine Rural
Electric Cooperative
10.4.17 Emergency Procedures A s s o c i a t i o n
(PHILRECA);
The System Operator, in
consultation with the Market (4) Manila Electric
Operator shall develop appropriate Company (MERALCO);
emergency procedures in
accordance with the Grid Code and (5) National Power
Distribution Code. Such procedures Corporation (NPC);
shall be subject to approval of the
PEM Board. (6) National Transmission
Company (TRANSCO);
(7) Power Sector Assets shall not be covered by
and Liabilities the provisions of the Rules
Management Corp. change process contained
(PSALM); in Chapter 8.
10.4.19.2 Responsibilities 10.4.19.4. Tenure
To ensure a smooth The TWG shall be

transition from constituted, as soon as
promulgation of possible, meet as often
these Rules to actual as practicable and shall
commercial operation of continue to undertake its
the spot market, the TWG functions until the actual
shall recommend to the operation of the spot
DOE for its appropriate market.
action, supplemental,
modificatory, clarificatory CHAPTER 11
and other amendments GLOSSARY
or additional provisions
to the WESM Rules which AC. Alternating current.
the TWG finds necessary
and reasonable, including Act. Refers to Republic Act No. 9136 also
but not limited to: known as the “Electric Power Industry Reform
Act of 2001”.
(a) Refinements in the
dispute resolution Active Energy. A measure of electrical energy
process; flow, being the time integral of the product
of voltage and the in-phase component
(b) Governance issues; of current flow across a connection point,
expressed in Watthours (Wh) and multiples
(c) Financial transmission thereof.
rights;
Administered Price Cap. A price cap imposed
(d) Market network by the Market Operator to the Trading
model; and Participants during market suspension and
intervention to be used for settlements. Said
(e) Market dispatch price cap shall be developed and published by
optimization model; the Market Operator for ERC approval.
10.4.19.3 Applicability Affected Participants. A WESM Member who

is affected by a decision or has a pecuniary
Consistent with clause interest in a decision.
8.1 that specified Rules
change procedure will AGC. Automatic Generation Control.
apply when the WESM is
in actual operation, the Ancillary Services. Those services that are
proposed amendments necessary to support the transmission of
of the TWG and the capacity and energy from resources to loads
corresponding official while maintaining reliable operation of the
issuance(s) by the DOE transmission system in accordance with good
utility practice, the Grid Code and Distribution day of each calendar month.
Code.
Black Start Capability. In relation to a
Ancillary Services Agreement. An agreement generating unit, the ability to start and
under which a WESM Member, registered synchronize without using supply from the
as an Ancillary Service Provider, agrees to power system.
provide ancillary services.
Black Start-up Facilities. Facilities which
Ancillary services cost recovery charge. provide black start capability.
The charge payable by WESM Members for
recovery of the cost incurred by the Market Business Day. Any day on which is open for
Operator for the provision of Ancillary business.
Services.
Central Dispatch. The process of scheduling
Ancillary Services Provider. A person or by the Market Operator and issuing direct
an entity providing ancillary services and instructions to electric power industry
registered with the Market Operator. participants by the System Operator to
achieve the economic operation of the
Anti-Competitive Behavior. This refers to transmission system while maintaining its
anti-competitive behavior as defined in the quality, stability, reliability and security.
Act, IRR and other rules and regulations that
ERC may promulgate. Chairperson. The person appointed by the
DOE to chair meetings of the PEM Board.
Authorization. A permit, consent, approval,
license or other form of authority issued Check data. Data supplied to the Market
under the Act which may be required as a Operator by a Trading Participant in
prerequisite for undertaking certain activities accordance with clause 3.5.5.3 for the
in the Philippines electric power industry. purpose of checking the validity of any future
offer or demand bid in accordance with clause
Autonomous Group Market Operator or 3.5.12.
“AGMO”. The Autonomous Group Market
Operator constituted by the DOE under Confidential Information. Information which
Section 30 of the Act, which shall undertake is or has been provided to, or by, a Participant
the preparatory work and initial operation or the Market Operator under, or in connection
of the WESM for a period of twelve months with, the WESM Rules and is stated under
from the spot market commencement date, the WESM Rules to be, or is classified by the
initially under the administrative supervision Market Operator as, confidential information
of the TRANSCO. For the avoidance of doubt, or is otherwise confidential or commercially
during that initial twelve month period, all sensitive information or is information which
references in the WESM Rules to “Market is derived from any such information.
Operator” shall be construed to mean
“AGMO”. Connect, Connected, Connection. To form a
physical link to or through the transmission
Bilateral contract. A contract between network or a distribution network in such a
parties, the net effect of which is that a way as to allow transmission of electricity in
defined quantity of electricity has been sold accordance with the standards set out in the
by one party to another, at a particular node. Grid Code.
Billing Period. The period of one calendar Connection Assets. Any component of a
month commencing on 12.00 am on the first transmission system or distribution system
which, in the reasonable opinion of the Market Contingency Reserve. The ability to respond
Operator, is associated with a connection so as to arrest a significant drop in system
point, including metering installations. frequency such as would arise as a result
of a credible contingency affecting one (or
Connection Point. The agreed point of supply more) generating units within a region, or
established between a Network Service transmission flows into a region.
Provider and a Trading Participant.
Credit Support. An obligation owed to the
Constrain-off. In respect of a generating unit Market Operator by a third party supporting
the output of that generating unit is limited the obligations of a Trading Participant under
below the level to which it would otherwise clause 3.14.11.
have been dispatched by the Market Operator
on the basis of its energy offer. Credit Support Provider. The party which
assumes credit support obligations to the
Constrain-on. In respect of a generating unit, Market Operator under clause 3.14.11.
the output of that generating unit is limited
above the level to which it would otherwise Customer. A person who:
have been dispatched by the Market Operator
on the basis of its energy offer. (a) engages in the activity of purchasing
electricity supplied through a transmission
Constraint. A limitation on the capability of or distribution system other than where
any combination of network elements, loads, all that person’s electricity requirements
generating units or Ancillary Service Providers are purchased from a Supplier; and
such that it is, or is deemed by the System
Operator to be, unacceptable to adopt the (b) registers with the Market Operator in
pattern of transfer, consumption, generation that capacity under clause 2.3.2.
or production of electrical power or other
services that would be most desirable if the Customer Node. A market trading node at
limitation were removed. which electricity will normally be purchased
from the spot market and which is classified
Constraint violation. A constraint is violated as a customer node in accordance with clause
when the loadings of network elements, 3.2.2.2.
loads, generating units or Ancillary Service
Providers involved in that constraint combine Customer Pricing Zone. A zone within which
in such a way as to exceed the limit specified all customers will face the same price for
by that constraint. electricity consumed, as published by the
Market Operator in accordance with clause
Constraint Violation Coefficients. Coefficients 3.2.3.1.
set by the Market Operator in accordance
with clause 3.6.2. The Market Operator is to Data Collection System. All equipment and
ensure that, if constraints shall be violated, arrangements that lie between the metering
such violation will occur in appropriate database and the point where the metering
priority order. data enters the public telecommunications
network.
Contestable Market. Refers to the electricity
End-users who have a choice of a Supplier of Data Logger. A device that collects energy
electricity, as may be determined by the ERC data and is capable of being accessed
in accordance with the Act. electronically by the Market Operator via the
data collection system.

Day Ahead Projections. Projections of market Dispatch Schedule. The target loading
conditions for the day ahead determined levels in MW for each scheduled generating
and published by the Market Operator in unit or scheduled load and for each reserve
accordance with clause 3.7.2. facility for the end of that trading interval,
determined by the Market Operator through
DC. Direct Current. the use of a market dispatch optimization
model in accordance with clause 3.8.1.
Default Event. Any one or more of the events
listed in clause 3.14.11.1. Dispatch Tolerances. Limits on the extent to
which Trading Participants may deviate from
Default Interest Rate. An interest rate of 2% dispatch targets determined by the System
per annum above the interest rate. Operator in accordance with clause 3.8.7.
Default Notice. A notice issued by the Market Dispatchable Load. A load which is able to
Operator under clause 3.14.11.2. respond to dispatch instructions and so may
be treated as a scheduled load in the dispatch
Demand Bid. A standing bid, or market bid process.
to buy electricity submitted, or revised, by
a Customer in accordance with clause 3.5.6, Dispatchable Reserve. The ability to respond
3.5.9, 3.5.12 or 3.5.13, and containing the to a re-dispatch performed by the System
information specified in Appendix A1. Operator during a trading interval, on either
a regular or an ad hoc basis.
Department of Energy or “DOE”. The
government agency created pursuant to Dispute Management System. A system for
Republic Act No. 7638 whose expanded managing disputes privately between the
functions are provided in the Act. relevant parties and without resorting to the
formal dispute resolution process in clause
Deregistered WESM Member. A person 7.3, and which has been approved by the
who is registered as a WESM Member until PEM Board under clause 7.3.3.
deregistered under clauses 2.5 and 2.6.
Dispute Resolution Administrator. A person
Direct WESM Member. A person or an entity appointed by the PEM Board under clause
who is registered with the Market Operator 7.3.2.1.
under clause 2.3.
Dispute Resolution Group. A pool of at least
Director. A member of the PEM Board seven experts appointed by the Dispute
appointed by the DOE under clause 1.4.3 Resolution Administrator from which the
having a duty to, among other matters, Dispute Resolution Panel is formed.
perform the duties of management of the
PEM Board, in accordance with clause 1.4.5. Dispute Resolution Panel. The panel
appointed by the Dispute Resolution
Disconnect. The operation of switching Administrator in accordance with clause
equipment or other action so as to prevent 7.3.5.1.
the flow of electricity at a connection point.
Distribution Code. The set of rules,
Dispatch. The act by which the System requirements, procedures, and standards
Operator initiates all or part of the response governing Distribution Utilities and users
offered or bid by a scheduled generating unit in the operation, maintenance, and
or scheduled load in accordance with clause development of their distribution systems. It
3.8.2. also defines and establishes the relationship
of the distribution systems with the facilities Electric Cooperative. A cooperative or
or installations of the parties connected corporation authorized to provide electric
thereto. services pursuant to Presidential Decree No.
269, as amended, and Republic Act No. 6938
Distribution Line. A power line, including within the framework of the national rural
underground cables that is part of a electrification plan.
distribution network.
Electronic Communication Procedures.
Distribution Network. A network which is not The procedures established by the Market
a transmission network. Operator and updated from time to time in
accordance with clause 5.2.2.5.
Distribution Service. The services provided
by a Distribution Utility which are associated Electronic Communication System. A system
with the conveyance of electric power used by Trading Participants and the Market
from transmission facilities or embedded Operator for exchange of information in
generators to End-users by a Distribution accordance with clause 5.2.2.1.
Utility through its distribution system
pursuant to the provisions of the Act and the Embedded Generators. Generating units that
IRR. are indirectly connected to the Grid through
the Distribution Utilities’ lines or industrial
Distribution System. The system of wires and generation facilities that are synchronized
associated facilities belonging to a franchised with the Grid.
Distribution Utility, extending between the
delivery points on the transmission or sub- Emergency. An event or situation described
transmission system, or generator connection in clauses 6.3.1.1 and 6.3.1.2.
and the point of connection to the premises
of the End-User. Emergency Directions. Directions issued by
the Market Operator in an emergency under
Distribution Utility. An Electric Cooperative, clause 6.5.1.
private corporation, government-owned
utility, or existing local government unit, End-user. Any person or entity requiring the
that has an exclusive franchise to operate a supply and delivery of electricity for its own
distribution system in accordance with its use.
franchise and the Act, and registered with
the Market Operator as a Network Service Energy. Generally, active energy and/or
Provider under clause 2.3.4. reactive energy but for the purposes for
chapter 3 means active energy only.
Economic Rental. Means, for a constraint
in the market dispatch optimization model Energy Balance Equation. An equation
where the constraint is in linear programming determined by the Market Operator
canonical form (that is, for a maximizing in accordance with clause 3.6.1.4 (c),
optimization model: the sum of the variable representing the balance between
terms less than or equal to the constant term), generation, load and transmission flows at a
the shadow price of the constraint multiplied particular node of the market network model.
by the constant term of the constraint.
Energy Data. The data that results from the
EFT Facility. An electronic funds transfer measurement of the flow of electricity in
facility. a power conductor. The measurement is
carried out at a metering point.

Energy Regulatory Commission or “ERC”. energy price, as appropriate, determined in
The independent, quasi-judicial regulatory accordance with clause 3.10.12.
body created under the Act.
Ex-Post Energy Settlement Quantity. The
Ex-Ante. A matter determined in relation to amount determined by the System Operator
a trading interval before that trading interval in accordance with clause 3.8.14.
commences.
Ex-Post Nodal Energy Price. The price
Ex-Ante Dispatch. The dispatch targets set determined by the Market Operator for a
for the end of a trading interval, immediately particular market node and trading interval,
preceding the beginning of that trading after the end of that trading interval in
interval. accordance with clause 3.10.6.
Ex-Ante Energy Settlement Price. The ex-ante Ex-Post Zonal Energy Price. A price determined
nodal energy price or the ex-ante zonal reserve by averaging ex-post nodal energy prices in
price, as may be appropriate, determined in accordance with clause 3.10.11.
accordance with clause 3.10.12.
Facility. A generic term associated with
Ex-Ante Energy Settlement Quantity. The apparatus, equipment, buildings and
gross amount determined by the Market necessary supporting resources for the
Operator in accordance with clause 3.13.5, generation, transmission, supply, sale and
and adjusted for bilateral contracts in consumption of electricity.
Final Statement. A statement issued by the
Ex-Ante Nodal Energy Price. The price Market Operator under clause 3.14.5.
determined by the Market Operator for a
particular market network node and trading Final WESM. The spot market operated by an
interval, immediately prior to commencement independent entity to which the functions,
of that trading interval, directly from the assets and liabilities of the AGMO are
dispatch optimization for that trading interval transferred in accordance with Section 30 of
in accordance with clause 3.10.2. the Act.
Ex-Ante Zonal Energy Price. The price Financial Year. A period commencing on 1
determined by averaging ex-ante nodal July in a calendar year and terminating on 1
energy prices in accordance with clause July in the following calendar year.
3.10.3.
Force Majeure Event. An event arising from
Excess Generation. Generation which may major network trouble that caused partial
be scheduled to occur in excess of load or system-wide blackout, market system
requirements, even though market energy software failure, and any other event,
prices have fallen to the market price circumstance or occurrence in nature of, or
floor, and which shall then be dealt with in similar in effect to any of the foregoing.
Formulation. A mathematical specification of
Ex-post. A matter determined in relation to an optimization model.
a trading interval after that trading interval
concludes. Franchise Area. A geographical area exclusively
assigned or granted to a Distribution Utility
Ex-Post Energy Settlement Price. The ex- for distribution of electricity.
post nodal energy price or the ex-post zonal
Frequency. For alternating current electricity, Grid Code. The set of rules, requirements,
the number of cycles occurring in each procedures, and standards to ensure the
second. The term Hertz (Hz) corresponds to safe, reliable, secured and efficient operation,
cycles per second. maintenance, and development of the high
voltage backbone Transmission Systems and
Generating System. A system comprising one its related facilities.
or more generating units.
Gross Ex-Ante/Ex-Post Energy Settlement
Generating Unit. A single machine generating Quantity. The ex-ante/ex-post energy
electricity and all the related equipment settlement quantity determined in
essential to its functioning as a single entity accordance with clauses 3.13.5/3.13.6 for
and having a nameplate rating of 1MW or a market trading node, in a trading interval
more. before any adjustment for bilateral contracts.
Generation. The production of electrical HVDC. High Voltage Direct Current.

power by converting one form of energy to
another in a generating unit. Indirect WESM Member. A person or an
entity who wishes to indirectly trade in the
Generation Company. A person or entity spot market. However, an Indirect WESM
authorized by the ERC to operate facilities Member may only transact through a direct
used in the generation of electricity, and WESM Member.
registered with the Market Operator in that
capacity in accordance with clause 2.3.1. Installation Database. The database which
a Market Operator is required to keep in
Generation Offer. A standing offer, or market respect of its metering installations pursuant
offer to supply electricity, submitted or revised to clause 4.7.
by a Generation Company in accordance with
clauses 3.5.5, 3.5.9, 3.5.10 or 3.5.11. Interest Rate. In relation to any period for
which an interest rate is to be determined
Generator Node. A market trading node at hereunder, a rate per annum equal to the
which electricity will normally be sold to prevailing 91-day Treasury Bill rate published
the spot market and which is classified as a by the Bureau of Treasury.
generator node in accordance with clause
3.2.2.2. Interim WESM. The spot market operated by
AGMO for a period of twelve months from
Government. The Government of the the spot market commencement date or until
Philippines. such time that AGMO ceases to exist.
Government Authority. Any government Intending WESM Member. A person who

or governmental, semi-governmental, wishes to become a WESM Member and who
administrative or judicial body, department, registers with the Market Operator under
commission, authority, tribunal, agency or clause 2.9.
entity.
Interruptible Load. Means load that a
Grid. The high voltage backbone system Customer is able to interrupt at very short
of interconnected transmission lines, notice in response to:
substations and related facilities, located in
each of Luzon, Visayas and Mindanao, or as (a) A frequency deviation; or
may otherwise be determined by the ERC in
accordance with Section 45 of the Act.
(b) A request of the System Operator, to be recovered from a particular reserve
cost recovery zone, in accordance with clause
In order to meet contingency reserve 3.3.5.
requirements, subject to the requirements of
the Grid Code and Distribution Code. Loss Differential. Has the same meaning as
agreed loss differential.
Intervention. A measure taken by the System
Operator when the grid is in extreme state Margin Call. An amount which the Market
condition as established in the Grid Code Operator calls to be paid by a Trading
arising from a threat to system security, force Participant in accordance with clause
majeure or emergency. During such event, 3.15.10.1 to make up any anticipated shortfall
the administered price cap shall be used for between that Trading Participant’s trading
settlements. limit and the Market Operator‘s exposure in
respect of that Trading Participant.
Line Rental. The economic rental arising from
the use of a transmission line, calculated as Market Bid. A demand bid for a particular
the difference in value between flows out of trading interval of a particular trading day in
the receiving node of that line and flows into the current market horizon, whether formed
the sending node, in accordance with clause from a standing bid in accordance with clause
3.13.12. 3.5.10 or revised by the relevant trading
participant, in accordance with clause 3.5.11.
Load. The amount of energy consumed in a
defined period via a node. Market Dispatch Optimization Model. The
optimization model which contains the
Load Forecast. Has the same meaning as net mathematical algorithm approved by the
load forecast. PEM Board to be used for the purposes
of determining dispatch schedules and
Load Shedding. Reducing or disconnecting energy prices, and preparing market
load from the power system. projections based on the price determination
methodology approved by ERC.
Load Weighted Average. An average
produced by multiplying each nodal energy Market Fees. The charges imposed on all
price by the load at that node, summing the WESM members by the Market Operator to
results, and then dividing by the sum of the cover the cost of administering and operating
loads involved. the WESM, as approved by the ERC.
Loading Level. The instantaneous level Market Horizon. A period for which day-
of output or consumption (in MW) of a ahead or week-ahead projections are
generating unit or load. performed, as defined in the timetable.
Local Supplier. In relation to a local area, the Market Information Web Site. A facility to be
Market Customer who is responsible for the established by the Market Operator on the
supply of electricity to franchise customers in electronic communication system on which
that local area. it may publish information which is then
available to and may be accessed by WESM
Locationally Specific Reserve Requirement. A Members.
requirement for a particular reserve category
to be met at a particular location, by reserve Market Load. The electricity delivered to
facilities in a particular reserve region in a connection point and purchased by a
accordance with clause 3.3.5, and with costs
Customer from the spot market. Market Trading Nodes. Those nodes at which
electricity will be either bought or sold from
Market Network Lines. Actual or notional the spot market, defined in accordance with
network lines joining market network nodes clause 3.2.2.
within the market network model.
Market Transaction. A sale or purchase of
Market Network Model. A mathematical electricity, or other services, made through
representation of the power system, which the spot market.
will be used for the purpose of determining
dispatch schedules and energy prices, and Meter. A device, which measures and records
preparing market projections. the consumption or production of electricity.
Market Offer. A generation offer for a Metered Quantity. The quantity of electricity
particular trading interval of a particular sold or purchased from the spot market
trading day in the current market horizon, (as applicable), determined by the Market
whether formed from a standing offer in Operator from metering data.
accordance with clause 3.5.10 or revised
by the relevant trading participant, in Metering. Recording the production or
accordance with clause 3.5.11. consumption of electrical energy.
Market Operator. The entity responsible for Metering Data. The data obtained or derived
the operation of the spot market governed from a metering installation.
by the PEM Board in accordance with clause
1.4 which, for the avoidance of doubt, is the Metering Database. The database kept by
AGMO for a period of twelve months from the Market Operator pursuant to clause 4.7.
the spot market commencement date and
thereafter the entity to which the functions, Metering Installation. The meter and
assets and liabilities of the AGMO are associated equipment and installations
transferred in accordance with section 30 of installed or to be installed for the collection
the Act. of metering data required for settlement
purposes.
Market Price. A generic term covering prices
for energy and reserve, ex-ante or ex-post, Metering Point. The point of physical
nodal or zonal, as appropriate. connection of the device measuring the
current in the power conductor.
Market Projections. Week ahead or day
ahead projections of spot market conditions, Metering Services Provider. A person or entity
performed in accordance with clause 3.7. authorized by the ERC to provide metering
services and registered with the Market
Market Surveillance Committee. The Operator in that capacity in accordance with
Committee appointed under clause 1.6. clause 2.3.6.
Market Suspension. An event wherein Metering Register. A register of information

the ERC declares the operation of the spot relating to metering installations kept by the
market to be suspended in cases of natural Market Operator and forming part of the
calamities or national and international metering database.
security emergencies. During such event,
the administered price cap shall be used for MW. Mega Watt.
settlements.

Nameplate Rating. The maximum continuous (c) transformer elements; and
output or consumption in MW of an item of (d) other plant associated with transmission
equipment as specified by the manufacturer. lines and distribution lines.
National Power Corporation or “NPC”. The Network Service. Transmission services

government corporation created under or distribution services associated with
Republic Act No. 6395, as amended. the conveyance, and with controlling the
conveyance, of electricity through the
National Transmission Corporation or network.
“TRANSCO”. The corporation organized
pursuant to the Act to acquire all the Network Service Provider. A person who
transmission assets of the NPC. engages in the activity of owning, controlling,
or operating a transmission or distribution
Net Load Forecast. A forecast, prepared system and who is registered with the Market
in accordance with the procedures to be Operator in that capacity under clause 2.3.4.
developed under clause 3.5.4, of the load,
net of any non-scheduled generation, to be Nodal Energy Price. The energy price at a
matched, along with any scheduled load, node determined ex ante or ex-post.
by generation from scheduled generation
facilities. Nodal Value of Lost Load (Nodal VoLL).
Means the constraint violation coefficient of
Net Settlement Surplus. The settlement the energy balance equations for each node
surplus remaining after all market transactions set by the Market Operator in accordance
have been accounted for, including the with clause 3.6.2.3.
assignment of transmission line rentals to
Network Service Providers. This remainder Node. A connection point on a network,
is assumed to be attributable to economic or junction point within a network model,
rentals arising from other binding constraints, whether physical, or notional.
and accounted for in accordance with clause
3.13.16. Non-Scheduled Generating Unit. A generating
unit or a group of generating units connected
Network. The apparatus, equipment and at a common point with a nameplate rating
plant used to convey, and control the and a combined nameplate rating of less than
conveyance of, electricity to customers one tenth of one percent (<0.1%) of the peak
(whether wholesale or retail) excluding load in a particular reserve region, or less
any connection equipment. In relation to a than ten percent (<10%) of the size of the
Network Service Provider, a network owned, interconnection facilities, whichever is lower.
operated or controlled by the Network Service
Provider. Normally Off. A situation in which a load does
not exist unless it is bid into the spot market.
Network Constraints. Constraints
representing network characteristics, such NRE Generating Unit with Intermittent
as limits on transmission line flows to be Energy Resource. A new and renewable
included in the market dispatch optimization energy generating unit or group of units
model in accordance with clause 3.6.1.4 (f). connected to a common connection point
whose energy resource is location specific
Network Lines. The: and has a natural variability which renders
the output unpredictable and the availability
(a) transmission lines; of the resource inherently uncontrollable,
(b) distribution lines; which include plants utilizing wind or ocean
energy. of key system elements.
Opportunity Cost. The economic loss Prudential Requirements. The requirements

suffered by some party as a result of losing an imposed on a Trading Participant to provide
opportunity, such as the opportunity to sell and maintain a security in accordance with
energy to the spot market. clause 3.15.
Outage. Any full or partial unavailability of Publish, Publication. To make available

equipment or facility. information.
Over-Riding Constraints. Constraints imposed Ramp Rate. The rate of change in electricity
in the market dispatch optimization model by production or consumption from a generating
the Market Operator, at the recommendation unit or scheduled load.
of the System Operator, with the intention of
over-riding the effect of a Trading Participant’s Reactive Energy. A measure in varhours
offers or demand bids in accordance with (varh) of the alternating exchange of stored
clause 3.5.13. energy in inductors and capacitors, which is
the time integral product of voltage, and the
Payment Date. The relevant date on which quadrature component of current flow across
a Trading Participant shall pay to the a connection point.
Market Operator the settlement amount in
accordance with clause 3.14.9. Reactive Power. The rate at which reactive
energy is transferred, produced or purchased
PEM Auditor. The auditor appointed by the by a Customer.
PEM Board under clause 1.4.6 to undertake
functions as set out in clause 1.5. Reactive Support. Unutilized sources of
reactive power arranged by the Market
PEM Board. The group of Directors serving Operator to be available to cater for the
from time to time on the board that is possibility of unavailability of another source
responsible for governing the WESM. of reactive power or increased requirements
for reactive power.
Plant. Any equipment involved in generating,
utilizing or transmitting electrical energy. Receiving node. For a transmission line,
the node from which there is a net flow of
Power System. The integrated system of electricity out of that line in a particular
transmission and distribution networks for trading interval to be accounted for in
the supply of electricity in the Philippines. determining the line rental, in accordance
with clause 3.13.12. For a transmission
Pricing error notice. A notice issued in right, the node to which the issuer of the
accordance with clause 3.9.6 advising the transmission right is deemed to guarantee
market that the ex ante prices for a particular transfer of electricity, to be advised to the
trading interval are unavailable, or invalid. Market Operator in accordance with clause
3.13.2 and accounted for in accordance with
Projection. A set of results derived in clause 3.13.15.
accordance with clause 3.7 from a series of
market dispatch optimization model runs Regulating Reserve. The ability to adjust
describing projected market conditions over a generation continuously in response to small
day-ahead or week-ahead market horizon for frequency changes, so a so as to cover load
a particular scenario of net forecast load, and fluctuations or minor breakdowns, defined as
set of assumptions with respect to availability an ancillary service in clause 3.3.4.2 (a).
Reliability. The probability of a system, Reserve Requirement Constraint A
device, plant or equipment performing its mathematical representation of a locationally
function adequately for the period of time specific reserve requirement, and included
intended, under the operating conditions in the market dispatch optimization model in
encountered. accordance with clause 3.6.1.4 (e).
Reserve. Contingency reserve or regulating Rules Change Committee. The committee

reserve. of that name established in accordance with
clause 8.2 and which acts in accordance with
Reserve Category. A particular kind or class of chapter 8.
reserve as under clause 3.3.4.2.
Run. A particular instance of the market
Reserve Cost Recovery Charges. Charges dispatch optimization model performed for
to recover the costs incurred in purchasing a particular trading interval, or a set of such
reserve, to be determined by a formula instances model performed for all the trading
approved by the ERC. intervals in a market horizon.
Reserve Cost Recovery Zone. A zone within Safety Plan. A plan which shall be developed
which reserve cost recovery charges may be by certain WESM Members in accordance
recovered to meet each locationally specific with the Grid Code and Distribution Code, and
requirement. applicable safety legislation and regulations
in the Philippines.
Reserve Effectiveness Factor. A factor to
define the effectiveness of reserve from Scenario. A net load forecast covering a
a particular type of reserve provider in market horizon.
meeting requirements for particular reserve
categories. Scheduled Generating Unit. A generating
unit so classified in accordance with clause
Reserve Facility. A facility capable of providing 2.3.1.2 (a)(1). A generating unit or a group
reserves. of generating units connected at a common
connection point with a nameplate rating or
Reserve Facility Category. A particular type of a combined nameplate rating of greater than
reserve facility, characterized by its technology or one tenth of one percent (>0.1%) of the
(eg interruptible load, synchronized peak load in a particular reserve region.
generation, non-synchronized generation)
which is reflected in the type of offer it can Scheduled Generation Company. A
make, and the reserve effectiveness factor. Generation Company that is required to play
an active role in the spot market by submitting
Reserve Offer. A standing offer, or market generation offers, and being subject to central
offer to supply reserves, submitted or revised dispatch.
by a Customer or Generation Company in
accordance with clause 3.5.7, 3.5.8, 3.5.10 or Scheduled Load. A load which is able to
3.5.11. respond to dispatch instructions, and has
been bid into the spot market using a demand
Reserve Region. A zone of the power system bid and so may be scheduled and dispatched
from which a particular reserve category can via the scheduling and dispatch procedures.
be supplied to meet a particular locationally
specific requirement. Sending node. For a transmission line, the
node into which there is a net flow of electricity

out of that line in a particular trading interval Spot Market Commencement Date. The
to be accounted for in determining the line date on which the spot market commences
rental, in accordance with clause 3.13.12. For operation as declared by the DOE.
a transmission right, the node from which the
issuer of the transmission right is deemed to Standing network data. Standing data
guarantee transfer of electricity, to be advised describing a particular network, provided by
to the Market Operator in accordance with the relevant Network Service Provider data in
clause 3.13.2 and accounted for in accordance accordance with clause 3.5.2.
with clause 3.13.15.
Standing Offer/Bid. A standing offer to sell
Settlement. The activity of producing bills energy or reserve, or a bid to buy energy,
and credit notes for WESM Members in submitted by the relevant Trading Participant
accordance with clause 3.13, and with the in accordance with clause 3.5.5, 3.5.6, 3.5.7
processes defined in clause 3.14. or 3.5.8, and revised from time to time in
accordance with clause 3.5.9, and effective
Settlement Amount. The amount payable until over-ridden by submission of a specific
by or to a Trading Participant, or Network market offer in accordance with clause 3.5.11.
Service Provider, in respect of a billing period
as determined by the Market Operator under Status. The actual operating condition of a
clause 3.13.14 or clause 3.13.15. generation unit or facility, including its current
commitment state, generation level, and AGC
Settlement Price. An ex-ante or ex-post activation status.
energy settlement price.
Supplier. Any person or entity licensed by
Settlement Quantity. An ex-ante or ex-post the ERC to sell, broker, market or aggregate
energy settlement quantity, or a zonal reserve electricity to End-users, and registered with
settlement quantity. the Market Operator as a Customer under
clause 2.3.2.
Settlement Surplus. The settlement surplus
remaining after all market transactions have Supply. The sale of electricity by a party other
been accounted for, including the assignment than a Generation Company or a Distribution
of transmission line rentals to Network Service Utility in the franchise area of a Distribution
Providers. This remainder is assumed to be Utility using the wires of such Distribution
attributable to economic rentals arising from Utility.
other binding constraints, and accounted for
in accordance with clause 3.13.15. Suspension Notice. A notice issued by the
Market Operator under clause 3.15.7.
Settlement System. The system, including
the computerized system, for conducting System Blackout. The absence of voltage on
settlements. all or a significant part of the transmission
system or within a region following a
Shadow Price. Means the marginal net major supply disruption, after one or more
benefit from a unit relaxation of the capacity generating systems and a significant number
limitation of a constraint in the market of customers.
optimization model.
System Operator. The party identified as the
Spot Market. Has the same meaning as the System Operator pursuant to the Grid Code
WESM. which is the party responsible for generation
dispatch, the provision of ancillary services,

and operation and control to ensure safety, limit set by the Market Operator for the
power quality, stability, reliability and security Trading Participant under clause 3.15.8.
of the grid.
Trading Participant. A Customer or Generation
System Security. The safe scheduling, Company.
operation and control of the power system
on a continuous basis in accordance with Transmission Line. Means a power line that is
the system security and reliability guidelines part of a transmission network.
established under the Grid Code.
Transmission Network. A network operating
System Security and Reliability Guidelines. at nominal voltages of 220 kV and above plus:
The standards governing system security and
reliability of the power system, which may (a) any part or a network operating at
include but are not limited to standards for the nominal voltages between 66kV and
frequency of the power system in operation 220 kV that operates in parallel to and
and ancillary services (including guidelines provides support to the higher voltage
for assessing requirements and utilization), transmission network;
developed by the Market Operator and
System Operator in accordance with the Grid (b) any part of a network operating at
Code. nominal voltages between 66 kV and
220 kV that does not operate in parallel
Target Loading Level. The loading level to and provide support to the higher
determined as an end-of-period target for a voltage transmission network but is
scheduled generator or load by the Market deemed by the Government to be part of
Operator in accordance with clause 3.8.1(e). the transmission network.
Time Stamp. The means of identifying the Transmission Right. The right to financial
time and date at which data is transmitted or compensation based on differences between
received. nodal energy prices at different market
trading nodes as notified under clause 3.13.2,
Timetable. The timetable prepared by the and settled in accordance with clause 3.13.15.
Market Operator for operation of the spot
market in accordance with clause 3.4.2. Transmission System. The transmission
network together with the connection assets
Trading Amount. The amount to be paid by, associated with the transmission network,
or paid to a Trading Participant, or Network which is connected to another transmission
Service Provider in respect of energy, reserve, or distribution system.
line rentals, or transmission rights calculated
in accordance with clauses 3.13.7, 3.13.8, Type. Has the same meaning as reserve
3.13.9, 3.13.10, or 3.13.14 respectively. facility category.
Trading Day. The 24-hour period commencing Unrestrained Load. Means the unscheduled
according to the Timetable. load which might have been expected by the
Market Operator, at any particular point in
Trading Interval. A 1-hour period commencing time, with no load shedding and assuming
on the hour. scheduled loads normally off.
Trading Limit. In respect of a Trading Vital Loads. Loads defined as sensitive by the
Participant at any time means the last trading Trading Participants.

VoLL. Has the same meaning as Nodal VoLL. Buyer or Concessionaire, IPP Administrators,
and other entities authorized by the ERC to
Voltage. The electronic force or electric participate in the WESM in accordance with
potential between two points that give rise to the Act.
the flow of electricity.
WESM Rules. The detailed rules that govern
Week Ahead Projections. The projections the administration and operation of the
performed for the week-ahead market WESM.
horizon by the Market Operator in accordance
with clause 3.7.1. Zonal Energy Price. An ex-ante or ex-post
zonal energy price.
WESM Member. A person who is registered
with the Market Operator in accordance with Zonal Reserve Price. The price for reserve in
clauses 2.3 and 2.4. a particular supply zone, and trading interval,
determined in accordance with clause
Wholesale Electricity Spot Market (“WESM”). 3.10.10.
The electricity market established by the DOE
in accordance with the Act. Zonal Reserve Settlement Quantity. The
amount of reserve deemed to have been
WESM Participants. All Generation supplied by a reserve supplier in a particular
Companies, Distribution Utilities, Suppliers, reserve region and trading interval,
Aggregators, End-users, the TRANSCO or its determined in accordance with clause 3.13.4.
APPENDICES
APPENDIX A
APPENDICES TO CHAPTER 3
Appendix A1. Information to be Supplied (d) Shall be for a minimum block size of five
with Offers to Supply and to (5) MW;
Buy Electricity
(e) Shall have monotonically increasing
A1.1 Generation Offer prices, starting from zero generation;
Generation offers: (f) May include negative prices;
(a) Shall include the location of the (g) Shall include maximum up/down ramp
connection point and relevant market rates;
network node;
(h) Shall include a validity period of offers
(b) Shall include the pricing zone of the (e.g. valid for specified period or valid
connection point; until offer is revised.); and
(c) May include up to ten (10) energy offer (i) Shall include an operating range (upper
blocks per (aggregate) unit; and lower limit).

A1.2 Reserve Offers (f) Shall include validity period of reserve
offers; and
Regulation reserve offers from Generators
shall consist of: (g) Operating range (upper and lower limit).
(a) A maximum response level for the Contingency reserve offers from Customers
relevant reserve category (MW); shall consist of:
(b) A minimum and maximum energy (h) A maximum response level for the
dispatch level (MW) at which any AGC relevant reserve category (MW);
reserve response will be available;
(i) A maximum proportion of the forecast/
(c) Up to 3 reserve offer blocks per aggregate scheduled load which may be interrupted;
unit (MW/block);
(j) Up to 3 reserve offer blocks (MW/block);
(d) A minimum block size of one (1) MW;
(k) A minimum block size of one (1) MW;
(e) Monotonically increasing prices starting
from zero for the first offer block, which (l) Monotonically increasing prices; and
shall correspond to the mandatory
reserve capability required from (m) Shall include validity period of reserve
that Generation Company under its offers.
connection agreement; and
A1.3 Demand Bids
(f) Shall include validity period of reserve
offers. Demand bids:
Contingency reserve offers from Generation (a) Shall have up to 10 bid blocks per take-off
Companies shall consist of: point;
(a) A maximum response level for the (b) Shall have a minimum block size of one
relevant reserve category (MW); (1) MW;
(b) A minimum energy dispatch level (MW) (c) Shall have monotonically decreasing
at which that maximum reserve response prices;
will be available;
(d) Shall start from a zero offtake;
(c) Up to 3 reserve offer blocks per aggregate
unit (MW/block); (e) May have bid prices that are negative;
and
(d) A minimum block size of five (5) MW;
(f) Shall include a validity period of bids.
(e)
Monotonically increasing prices
starting from zero for the first offer Appendix A2. Information to be Supplied
block, which shall correspond to the by Network Service
mandatory reserve capability required Provider
from that Generation Company under its
connection agreement;

Network Characteristics (c) Loss functions for each line and system
component expressed as a quadratic
Most of these information will be supplied as function; and
standing data which will be updated only as
required for a trading interval. (d) Limits on lines and other system
components including:
Network Service Providers data submitted are
to consist of: (1) Thermal limits for normal operations;
(2) Thermal overload limits of specific
(a) Topology of the market network model; duration; and
(3) Contingency limits.
(b) Impedances of lines, and other system
components; (e) Limits on the operation of HVDC
equipment
APPENDIX B
Appendix B1. Metering Register (1) Metering installation identification

number; and
B1.1 General
(2) Identification of equipment related
The metering register forms part of the to, and associated with, the metering
metering database and holds metering installation.
information relating to metering installations.
(b) Location in spot market:
The purpose of the metering register is to
facilitate: (1) Transmission or distribution
connection point identification; and
(1) The registration of connection points,
metering points and affected Participants; (2) Details of the site at which the meter
is located, including the owner of the
(2) The verification of compliance with the site.
WESM Rules; and
(c) Associated parties:
(3) The audit flow of changes to the
registered information. (1) Metering data agency identification;
B1.2 Metering register information (2) Metering Services Provider

identification;
Metering information to be contained in
the metering register should include such (3) Market Trading Participant settling
information as the Market Operator considers account identification;
reasonably necessary and by way of example,
may include the following: (4) Local Supplier identification; and
(a) Meter identification:

(5) Relevant Network Service Provider (2) Serial numbers;
identification.
(3) Metering installation identification
(d) Data validation and substitution name;
processes agreed between affected
Participants, including: (4) Metering installation types and
models;
(1) Algorithms;
(2) Data comparison techniques (5) Current test and calibration
(3) Processing and alarms; and programme details, test results and
(4) Alternate data sources. references to test certificates as
required under the Grid Code and
Appendix B2. Installation Database Distribution Code;
Each installation database shall contain the (6) Calibration tables, where applied
following installation information and such to achieve metering installation
other installation information as specified by accuracy as required under the Grid
the Market Operator: Code and Distribution Code; and
(a) Metering point reference details, (7) Data register coding details.
including:
(c) Data communication details, including:
(1) Locations and reference details (e.g.
drawing numbers); (a) Telephone number(s) (or frequency
details in the case of telemetric
(2) Site identification names; equipment) for access to data;
(3) Standard equipment identification (b) Communication equipment type and

numbering (SEIN) in accordance with serial numbers;
the Grid Code and Distribution Code;
(c) Communication protocol details or
(4) Details of affected Participants references;
associated with the Metering point;
and (d) Data conversion details;
(5) The Metering Services Provider. (e) User identifications and access
rights; and
(b) The identity and characteristics of
metering equipment including: (f) “Write” password (to be contained in
a hidden or protected field).

APPENDIX C
Background Note to The table below summarizes the information

contained in this Background Note.
Appendix C1 Classification of Rules
Classification Who can bring Nature of sanction
of Rules action (imposed by ERC)
The following Background Note is included
for information purposes only - it does not Administrative ERC Penalties
Penalty Provisions
form part of the WESM Rules. It is intended
Regulatory ERC Injunction
to provide a general indication of the basis on Provisions declaration
which the classification of the WESM Rules Conduct Provisions Any person Damages injunction
has been made, and a guide, only, for the declaration
classification of future new Rules.
Provisions Requiring Classification
The Act
Those provisions of the WESM Rules which
The Act provides for the ERC to have impose an obligation on a person have been
responsibility for: classified. Where a provision of the WESM
Rules allows a discretion on the relevant
(a) The enforcement of the WESM Rules and, person as to whether or not to do something,
as a consequence; that provision has not been classified, as it
will not be a breach of that provision if the
(b) The imposition of fines and penalties for person decides not to perform in accordance
breaches of the WESM Rules. with that provision.
To facilitate its responsibility in this regard, Administrative Penalty Provisions

the WESM Rules have been classified into
three categories as follows: Administrative penalty provisions are
provisions the breach of which is regarded as
(a) Administrative penalty provisions; most serious. Generally, they are provisions
(b) Conduct provisions; which shall be complied with in order to
(c) Regulatory provisions. ensure that the spot market and the WESM
Rules work properly.
Although the initial classification of the
WESM Rules is included as part of this Administrative penalty provisions are
Background Note, for information purposes enforceable only by the ERC, who may bring
only, to provide an indication of the nature proceedings for the levy of a administrative
of provisions which are likely to be classified penalty, i.e. a fine for an offence provable
into each category, it is important to note that on the balance of probabilities. Any person
regulations made under the Act may be made can advise the ERC of an alleged breach of a
which alter this initial classification. The administrative penalty provision, although it
classification of the WESM Rules is very much is up to the ERC to take the matter further.
a policy issue which may involve considerable Clause 7.2.2 of the WESM Rules also provides
consultation. However, this classification may a mechanism by which the Market Operator,
assist in that process or be adopted if that on its own account or on the advice of a
process does not proceed. WESM Member, can decide to bring an
alleged breach to the attention of the ERC.

Conduct Provisions in accordance with those dispute resolution
procedures, before resorting to other formal
A conduct provision is a provision involving legal recourse (such as the courts).
an obligation to be performed by a person
where the consequences of a breach are Regulatory Provisions
less serious than for a administrative penalty
provision. Most provisions of the WESM Rules Regulatory provisions generally fall into two
that are not of an administrative nature or main categories:
are to be performed by the Market Operator
will be classified as conduct provisions. (a) Obligations to be performed by the
However, generally, an obligation to pay Market Operator (other than obligations
money, including one imposed on the Market to pay money, which will be classified as
Operator, will be classified as a conduct conduct provisions); and
provision.
(b) Obligations of an administrative nature.
Conduct provisions are enforceable by any
person by bringing injunction proceedings. In The injunction remedy will be available
addition, anyone who suffers loss or damage for breaches of regulatory provisions, on
by conduct in contravention of a conduct application by the Government.
provision will also have a statutory right to
recover the loss or damage in a civil action Rules May be in Two Categories
against the person whose breach of the
WESM Rules caused it. However, this right is An administrative penalty provision may be a
subject to the dispute resolution procedures conduct provision or a regulatory provision as
in clause 7.3, which require a Participant to well, but conduct provisions and regulatory
take any action relating to the WESM Rules provisions are mutually exclusive.
AMENDMENTS TO THE WESM RULES
WHEREAS, Republic Act No. 9136, otherwise WHEREAS, the Act enjoined the Department
known as the “Electric Power Industry of Energy (the “DOE”) to establish the WESM
Privatization Act of 2001” (the “Act”), which and to jointly formulate with the electric
became effective on 26 June 2001, provides power industry participants the detailed
for the framework for the restructuring of rules thereof, within one (1) year from the
the electric power industry to bring about a effectivity thereof, provided, that the price
free and fair competition on the pricing of determination methodology shall be subject
electricity; to the approval of the Energy Regulatory
Commission (the “ERC”);
WHEREAS, the Act mandates the
establishment of a wholesale electricity spot WHEREAS, in accordance with and
market (the “WESM”) where the trading of in compliance with the Act, the DOE
electricity can be made; promulgated the WESM Rules under
dated 28 June 2002;
WHEREAS, in compliance with the Act, the the customer pricing zones to be
pertinent application for approval of the Price used for the settlement of energy for
Determination Methodology (the “PDM”) customers.”
for the WESM was submitted to the ERC for
approval; (3) Rule 3.2.3.2 is amended to read as
follows –
WHEREAS, the ERC, through its Order dated
15 March 2004 in ERC Case No. 2003-356 “All customers within a customer
required compliance with certain directives pricing zone shall face the same price
before the said price determination for electricity consumed.”
methodology may be approved, which
directives requires, in turn, the amendment (4) Rule 3.5.4.1 is amended to read:
of the WESM Rules;
“Each Customer may submit a
WHEREAS, in compliance with the ERC forecast in respect of each trading
directives, the DOE jointly with the electric interval for each of its registered
industry participants through the Philippine load facilities for each trading day
Electricity Market Corporation and its of week in accordance with the
technical working group and sub-committees, timetable. The forecast submitted
and in accordance with the provisions of the by the Customer shall be used by the
WESM Rules on Rules Change, formulated the Market Operator in the preparation
pertinent amendments to the WESM Rules; of Net Load Forecast.

NOW THEREFORE, pursuant to its mandate “If the Customer fails to submit
under the Act and in accordance with the a forecast of his load facilities in
WESM Rules, the DOE hereby issues, adopts accordance with the timetable, the
and promulgates the following amendments forecast prepared by the Market
to the WESM Rules: Operator at the node where the
customer is located shall be used.”
(A) Amendments to the WESM Rules
(5) Rule 3.13.1.1 (b) is amended to read
(1) Rule 3.2.2 is amended to insert Rule –
3.2.2.3(A) before Rule 3.2.2.4
“(b) Identify the counter party to
“Nodal Prices at Market Trading the bilateral contract and the party
Nodes shall be used for the that will pay the line rental trading
settlement of energy for both amount associated with the bilateral
generators and customers.” contract quantity submitted; and”

(2) Rule 3.2.3.1 is amended to read as (6) Rule 3.13.15 is hereby deleted.
follows –
(7) Rule 3.13.16.2 is amended to read –

“Customer nodes may be grouped “The net settlement surplus:
into customer pricing zones in
accordance with the procedures “(a) May be retained by the Market
to be developed by the Market Operator to fund deficit as a result
Operator and subject to the approval of transactions required in clauses
of the PEM Board. The Market 3.13.14, or may be flowed back to the
Operator shall maintain and publish Market Participants in accordance
with the procedures to be developed
under clause 3.13.16.3, or, may be reasonably necessary to promote
used by the Market Operator to WESM objectives. Any changes
establish and support the market made on the procedures shall have
for Financial Transmission Rights approval from the PEM Board.”
subject to the approval of the PEM
Board; and, (9) Rule 3.13.17 shall be added and shall
read as follows –
“(b) Shall be clearly accounted for
and taken into account when setting “Rule 3.13.17 Settlement Amounts
the allowable charges under any for Trading Participants with Bilateral
regulatory instruments applying to Contracts
the Market Operator.”
“3.13.17.1 For each billing period, the
(8) Rule 3.13.16.3 is amended to read – Market Operator shall determine the
settlement amount for each trading
“The Market Operator shall: participant with bilateral contract
as the sum of the aggregate trading
“(a) publish regular summary reports amounts for the trading intervals in
on the amount of any net settlement that billing period, determined in
surplus being generated; accordance with clause 3.13.17.2.
“(b) within one year from spot “(a) Any amount payable by the
market commencement date, and Market Operator to that Trading
every year thereafter, publish a Participant in respect of that billing
review of the underlying factors period and not accounted for in
giving rise to any net settlement clause 3.13.17.2, including payment
surplus, and attempt to identify any for any ancillary services purchased
binding constraints which may have on behalf of the System Operator,
caused or contributed to such net less the sum of
settlement surplus;
“(b) Any market fees which that
“(c) determine, in consultation with Trading Participant is required to
Trading Participants and Network pay in respect of that billing period
Service Providers, and subject to as determined in accordance with
approval by the PEM Board, whether clause 2.10; plus
the net settlement surplus generated
by any particular set of constraints “(c) Any other amounts payable
is of such magnitude as to justify by that Trading Participant to the
development of a regime similar Market Operator in respect of that
to that implemented in the WESM billing period, including any ancillary
Rules with respect to transmission services recovery charges.
line rentals and transmission rights;
“3.13.17.2 The aggregate trading
“(d) develop procedures on the
amount for a Trading Participant for
possible uses of net settlement
a trading interval equals the sum of:
surplus subject to approval by the

PEM Board; and
“(a) The ex-ante energy trading
“(e) continuously review the amounts for each market trading
procedures on possible uses of net node for which the Trading
settlement surplus to the extent the Participant is responsible calculated
Market Operator considers it to be in accordance with clauses 3.13.7
and 3.13.8 (which will typically be procedures developed under clause
positive for a Generation Company 3.3.4 (which will be positive for any
and negative for a Customer); plus Trading Participant); and

“(b) The ex-post energy trading “(g) Any other ancillary service cost
amounts for each market trading recovery charges determined for that
node for which the Trading trading Participant in accordance
Participant is responsible calculated with the procedures developed
in accordance with clauses 3.13.7 under clause 3.3.4.”
and 3.13.9 (which will typically be
positive or negative for any Trading (10) Rule 3.15.2.2 (c) is hereby deleted.
Participant); plus
(11) Rule 10.4.6.1 is amended to read as
“(c) The line rental trading amount follows –
corresponding to the quantity of
bilateral contract of that Trading “When Customer Pricing Zones are
Participant calculated in accordance adopted and prior to spot market
with clause 3.13.12; plus commencement date, the Market
Operator shall:”
“(d) The reserve trading amounts
for each reserve region into which (12) The definition of Settlement Surplus
that Trading Participant contributes found in Chapter 11 – Glossary is
reserve calculated in accordance with amended to read as follows –
clause 3.13.10 (which will always
be positive for both Generation “Settlement Surplus – The settlement
Companies mid Customers); plus surplus remaining after all market
transactions have been accounted
“(e) The transmission right trading for and is assumed to be attributable
amounts for each transmission to economic rentals arising from
right held by the WESM Participant other binding constraints.”
calculated in accordance with clause
3.13.13 (which will always be positive (B) Effectivity. –
for both Generation Companies and
Customers); plus These amendments shall be effective on the
fifteenth (15th) day following its publication
“(f) The reserve cost recovery in the Official Gazette.
charge determined for that Trading
Participant with respect to any VINCENT S. PÉREZ, JR.
reserve cost recovery zone within Secretary
which it has any facility connected Manila, Philippines, 7 July 2004
calculated in accordance with the

ADOPTING FURTHER AMENDMENTS TO THE WESM RULES
WHEREAS, Rule 8.6.1 of the Wholesale “Where the WESM Rules identify
Electricity Spot Market (WESM) Rules matters that are subject to review or
provide for the approval by the Department consultation in accordance with the
of Energy (DOE) of proposals for any WESM public consultation procedures, the
rules changes upon endorsement by the PEM PEM Board shall ensure that, as a
Board; minimum, the following procedures
are followed:
WHEREAS, on September 9, 2005, the Interim
Rules Change Committee has approved a (a) The PEM Board shall publish in
resolution endorsing for approval before the market information website
the PEM Board changes in the WESM Rules particulars of the matter to
pertaining to the governance, procedure WESM Participants and other
on rules change, and market operations interested persons, inviting
including correction of clerical errors; written submissions concerning
the matter to be made by a
WHEREAS, after discussion, the PEM Board specified date.”
has resolved on September 27, 2005 to
approve for endorsement to the Department 4. Rule 3.5.4.1 (as amended) is further
of Energy (DOE) the abovestated changes to amended to read -
the WESM Rules;
Each Customer may submit a forecast
NOW THEREFORE, pursuant to its authority in respect of each trading interval for
under the WESM Rules, the DOE hereby each of its registered load facilities
issues, adopts and promulgates the following for each trading day of the week in
amendments to the WESM Rules: accordance with the timetable. The
forecast submitted by the Customer
A. Amendments to the WESM Rules shall be used by the Market Operator
in the preparation of Net Load
1. Rule 1.4.2.7 (d) is amended to read - Forecast if it is within the forecast
tolerance range published by the
“(d) Has not been employed by any Market Operator.
electric power industry participant,
or a company or body related to or If the Customer fails to submit
associated with a WESM participant a forecast of its load facilities in
(as defined in clause 1.4.2.7 (c) accordance with the timetable or
within one year prior to nomination if the Customer forecast submitted
date; and is not within the published forecast
tolerance range, the forecast
2. Rule 1.6.2 (c) is hereby deleted and prepared by the Market Operator
intentionally left blank. at the node where the Customer is
located shall be used.
3. Rule 1.9 is amended to read as
follows -
Prior to the commencement of the the ex-post prices determined
spot market, the Market Operator, according to clause 3.10.7 shall
in consultation with WESM also serve as ex-ante quantities
Participants, shall determine and and ex-ante prices.
publish the forecast tolerance range.
The forecast tolerance range may b) If no pricing error notice is issued
be varied from time to time by the within the time specified in the
Market Operator. foregoing paragraph, the ex-post
prices and quantities shall serve
5. Rule 3.6.5 is amended to read - as ex-ante prices and quantities
and shall stand irrespective of
From time to time, the System the outcome of any subsequent
Operator and the Market Operator investigations or resolutions of
shall investigate the scope for further any dispute.
development of the market dispatch
optimization model beyond the c) Should the pricing error also
minimum requirements specified include reserves, the reserve
in clause 3.6.1 and submit their quantity and price determined
recommendations in a report to the in the ex-post run shall serve as
PEM Board for consultation with the reserve quantity and prices.
WESM Members.
8. Rule 3.10.6 is amended to read -
The ex-post nodal energy price for
If, as a result of load shedding, no each market trading node shall be
ex-ante prices can be determined or determined as the shadow price
communicated within the timeframe on the energy balance equation for
specified in the timetable, or the that market trading node, formed in
calculated prices are believed to be accordance with clause 3.6.1.4 (c),
in error, the Market Operator shall, in an ex-post dispatch optimization
as soon as possible, issue a pricing performed, in accordance with
error notice in accordance with the timetable, to determine target
clause 3.10.5. dispatch levels for the end of that
trading interval assuming:
a. The plant status at the end of that
In the event where no ex-ante prices trading interval as determined
can be determined or communicated for the ex-post dispatch
within the timeframe specified by optimization or if load shedding
the timetable, or the calculated occurred in that trading interval,
prices are believed to be in error, as the plant status which would
a result of load shedding, occurrence have pertained at the end of that
of constraint violation coefficients, or trading interval, as indicated in
for any other reason: the targets determined by the
ex-post dispatch for that trading
a) The Market Operator may, as interval;
soon as possible after the end
of a trading interval, issue a b. The generation offers which
pricing error notice, in which applied at the beginning of that
case, the ex-post quantities and trading interval;
c. The unrestrained load for each market trading node shall be
determined from metering data, determined by the Market Operator
or estimated, at the end of that as follows:
trading interval, to apply at each
market network node for that a) If the market trading node is
trading interval. defined under clause 3.2.2.1
as lying in the boundary of the
9. Rule 3.10.7 is amended to read - power system operated by the
System Operator, the gross ex-
The Market Operator, in consultation post energy settlement quantity
with WESM participants and subject for the market trading node is
to approval by the PEM Board, shall the net metered flow into the
develop and publish procedures to power system operated by the
be employed in clauses 3.10.6 (d) System Operator through the
and (e) in establishing the network associated meter;
configuration and other constraints
to be assumed for the determination b) If the market trading node is
of ex-post nodal energy prices for defined under clause 3.2.2.2 as
circumstances in which power a generator node lying on the
system conditions materially change interface between networks,
during the trading interval, with a apparatus or equipment
view to ensuring that: operated by parties other than
the System Operator the gross
b) The ex-post prices produced in ex-post energy settlement
accordance with clause 3.10.6, quantity for the market trading
properly and fairly represent node is the net metered flows
conditions at the end of the through the associated meter
trading interval. from the Generation Company
to the Customer side of the
10. Rule 3.13.1.1 is amended to read – meter; and
Trading Participants who sell 12. Rule 3.13.7 is amended to read -

electricity pursuant to bilateral
contracts and wish those bilateral For settlement purposes, the ex-ante
contracts to be accounted for in energy settlement quantity for any
settlements shall, after each trading market trading node in any trading
day, in accordance with the billing interval shall be determined by the
and settlements timetable: Market Operator by adjusting the
gross ex-ante energy settlement
a) Submit a schedule to the Market quantity for that market trading
Operator specifying the MWH node and any trading interval, as
bilateral sell quantities at each measured in accordance with clause
relevant market trading node, 3.13.5 or estimated in accordance
in each trading interval of that with clause 3.13.6, for bilateral
trading day; contract quantities notified to the
Market Operator under clause
11. Rule 3.13.6(a) is amended to read - 3.13.1.1, or inferred by the Market
Operator under clause 3.13.1.1
For each trading interval, the gross and accepted as valid under clause
ex-post energy settlement quantity 3.13.1.2 by:
13. Rule 3.13.16.1 is amended to read - 17. Rule 7.3.1.1 (i) is amended to
read–
If the transactions required by
clauses 3.13.14.2 (a), (b) and (d), The dispute resolution procedures
in aggregate, result in a surplus or set out in this clause 7.3 apply to all
deficit remaining, this will be known disputes which may arise between
as the net settlement surplus. any of the following:
14. Rule 3.14.7 is amended to read - as to:

After the Market Operator is to be (i) A dispute under or in relation to
paid under clause 3.14.6 and in the rules and regulations issued
accordance with the schedule set in by the ERC and DOE under
the billing and settlements timetable, the Act, where such rules and
the Market Operator shall pay to regulations provide that the
each WESM Member in cleared dispute resolution procedures
funds the settlement amount (if any) under the WESM Rules are to
stated to be payable to that WESM apply to any dispute under or
Member in that WESM Member’s in relation to that rules and
final statement. regulations; or
15. Rule 6.2.3 is amended to read - 18. Rule 8.2.2.2 is amended to read –
During market suspension and The principle applicable to the

intervention, the Market Operator composition and operation of the
shall impose an administered price PEM Board as set out in clause 1.4.2
to be used as basis for settlements. apply also to the composition of the
Rule Change Committee.
commencement date, the Market 19. Rule 8.2.9 is added and will read -
Operator shall develop and publish
the methodology for determining the a) Subject to clause 8.6.4.2, the
administered price to be used during Rule Change Committee will
market suspension or intervention of recommend for approval of
the spot market. Said administered the PEM Board a system of
price is to be endorsed by the PEM classification of changes to the
Board for ERC approval. WESM Rules.
16. Rule 6.5.1.1 (b) is amended to read - b) Subject to approval by the

PEM Board, the Rule Change
The System Operator shall also: Committee will develop and
publish detailed guidelines and
1. Implement any load shedding procedures to be employed in
in a manner consistent with the the consideration, approval,
system security and reliability publication and effectivity of
guidelines; and any proposed change to the
WESM Rules. These guidelines
2. To the extent possible, determine and procedures will, as far as
a rotating outage plan, and rotate practicable, be consistent with
any load shedding requirements. the provisions of this chapter
8, provided, however, that which are set out in clause 8.4.1, it
the Committee may establish shall approve the amendment and
procedures, time periods and cause its publication. The change
manner of publication and to the WESM Rules approved by the
effectivity other than as stated in DOE will take effect within fifteen
this chapter 8 depending on the days from its publication, or on such
classification of the proposed later date as the DOE, determines.
change.
23. Rule 8.6.4.2 is amended to read -
Upon recommendation of the Rules
Change Committee, the PEM Board
Approving and submitting proposed
shall ratify the classification system
Rule change for approval
of rule change proposals developed
by the Committee pursuant to clause
If the PEM Board concludes that
8.2.9 (a) that will delineate proposals
the proposed change to the WESM
requiring DOE review and approval
Rules satisfies the criteria which are
vis-à-vis proposals that can be acted
set out in clause 8.4.1 and that the
upon at the PEM Board level. This
processes and procedures set out in
classification shall be approved by
clause 8.4 have been duly followed,
the DOE.
the PEM Board:
24. The definition of administered price
a) shall submit the proposed
under Rule 11 is amended to read
change to the WESM Rules to the
-
DOE for approval if the proposed
change requires approval by the Administered price. A price imposed
DOE under the classification by the Market Operator to the
system approved pursuant to Trading Participants during market
clause 8.6.4.2; or suspension and intervention to be
used for settlements which price
b) shall cause publication of the
is determined in accordance with
approved rule change, if the
the methodology developed and
proposed rule change requires
published by the Market Operator
approval of the PEM Board
and approved by the ERC.
only. The approved rule change
will become effective after its 25. The definition of Business Day under
publication on such date and for Rule 11 is amended to read -
such period as the PEM Board
determines. Business day. Any day on which the
spot market is open for business.
21. Rule 8.6 is amended to read -
And the following clerical corrections:
Approval of Proposed Rule Changes
by the DOE
22. Rule 8.6.4.1 is amended to read - Prior to commencement of each

trading interval, the Market
If the DOE concludes that a proposed Operator shall, in consultation
change to the WESM Rules is with the Grid Operator, and in
consistent with the Act and the public accordance with the timetable:
interest and satisfies the criteria
b) Prepare a forecast of the for the trading intervals in
unrestrained net load that billing period, determined
expected at each market in accordance with clause
trading node for the end of 3.13.14.2: plus
that trading interval;
7. Rule 3.15.7.1 (a) is amended to
2. Rule 3.8.2.2 (b) is amended to read -
read -
Publish the suspension notice;
Load shedding or other and
directions issued by the System
Operator during the trading 8. Rule 3.15.7.6 is amended to read
interval; -
3. Rule 3.11.1.2 (a) is amended to If:

read -
(b) The Market Operator has
Final dispatch offers and when issued a suspension notice
applicable, reserve offers; to a WESM Member due to a
failure by the WESM Member
4. Rule 3.11.1.2 (e) is amended to to continue to satisfy the
read – prudential requirements and
in the Market Operator’s
The identification of the Trading reasonable opinion the
Participant submitting the WESM Member is incapable
dispatch bid or dispatch offer of rectifying that failure for
any reason.
5. Rule 3.13.12 (a) is amended to
read -
calculate the line rental trading Subject to clause 4.4.3,
amounts for each transmission Generation Company or
line in the market network model Customer which is involved in
as: the trading of energy shall not be
registered as a Metering Services
(a) The expected flow of energy Provider for any connection point
out of the receiving node of in respect of which the metering
the market network line as data relates to its own use of
determined by the market energy.
dispatch optimization model
multiplied by the ex-ante B. Effectivity
nodal energy settlement
price at that node; less These amendments shall be effective fifteen
(15) days following its publication in two (2)
6. Rule 3.13.14.1 is amended to
national newspapers of general circulation.
read -
For each billing period, the RAPHAEL P. M. LOTILLA

Market Operator shall determine Secretary
the settlement amount for each
Trading Participant as the sum of Metro Manila, Philippines,
the aggregate trading amounts November 11, 2005
WHEREAS, Rule 8.6.1 of the Wholesale 3. Rule 1.4.2.7 (c) is amended to read –
Electricity Spot Market (WESM) Rules
provide for the approval by the Department (c) Is not an officer, manager,
of Energy (DOE) of proposals for any WESM director or shareholder, agent,
rules changes upon endorsement by the PEM employee or contractor of,
Board; or is not a person directly or
indirectly, through one or more
WHEREAS, on November 8, 2005 and intermediaries, controls, is
December 8, 2005, the Interim Rules Change controlled by a company, affiliate
Committee has approved a resolution or any other entity related to
endorsing for approval before the PEM Board or associated with a WESM
changes in the WESM Rules pertaining to the Member, where:
governance and market operations;
(1) A related company or body,
WHEREAS, after discussion, the PEM is a parent, holding company
Board has resolved on November 10, 2005 subsidiary or affiliate of the
and December 15, 2005 to approve for WESM Member; and
endorsement to the Department of Energy
(DOE) the abovestated changes to the WESM (2) An associate is a person who
Rules; is director, officer, manager
or shareholder of that
NOW THEREFORE, pursuant to its authority related company or entity,
under the WESM Rules, the DOE hereby or a relative of such a person
issues, adopts and promulgates the following within the fourth civil degree
amendments to the WESM Rules. of affinity or consanguinity;
A. Amendments to the WESM Rules 4. Rule 1.4.2.7 (d) is amended to read –
1. Rule 1.4.2.7 (a) is amended to read – (d) Has not been employed as
an officer, or any supervisory
(a) Is not a director, officer, or managerial capacity, by
employee, contractor, agent, any electric power industry
manager, or shareholder of a participant, or a company or
WESM Member, body related to or associated
with a WESM Member within
2. Rule 1.4.2.7 (b) is amended to read – one year prior to the nomination
date; and
(b) Is not a relative of a person,
within the fourth civil degree 5. Rule 1.4.2.7 is added to read –
of consanguinity or affinity, of
a director, officer, manager, The term shareholder as used in this
shareholder of a WESM Member, clause 1.4.2.7 (a), (b) and (c) shall be
understood to exclude:
(a) a member of an Electric manuals, procedures and
Cooperative who is not guidelines; and
involved in the operation and
management of the same (e) A Dispute Resolution
Electric Cooperative; and Administrator to facilitate
the mediation of the dispute
(b) an End-user who is required to between the parties to reach
subscribed to, or to purchase, a resolution within a specified
share in a Distribution Utility as period of time in accordance
an incident to the provision of with the dispute resolution
service by the same Distribution process under clause 7.3
Utility, provided that the interest
of the End-user be not more 7. Rule 1.4.7.1 is added to read –
than the minimum required to
avail of the Distribution Utility’s The PEM Board shall establish a
services. Market Assessment Group which
shall have the following powers and
6. Rule 1.4.6 is amended to read – functions:
The PEM Board shall form working (a) Serve as the primary support
groups and appoint qualified unit of the PEM Committees;
personnel who shall act as the
following: (b) Assist the PEM Board or the
Market Surveillance Committee
(a) The PEM Auditor to conduct to establish the procedures for
audits of the operation of the monitoring and assessing the
spot market and of the Market performance of the WESM and
Operator in accordance with the activities conducted by the
clause 1.5; WESM Members with the end
view of ensuring the effective
(b) A Market Surveillance Committee functioning or overall efficiency
to monitor and report on of the WESM;
activities in the spot market in
accordance with clause 1.6; (c) Regularly collect and process
market monitoring data and
(c) A Technical Committee to indices;
monitor and review technical
matters under and in relation (d) Prepare periodic assessment
to the WESM Rules, the Grid reports on overall
Code and Distribution Code in market performance and
accordance with clause 1.7; competitiveness;
[and]
(e) Provide support and assistance
(d) A Rules Change Committee to to the different PEM Committees
assist the PEM Board and the formed in accordance with
DOE in relation to the revision clause 1.4.6, when requested
and amendment of the WESM and in a manner as deemed
Rules in accordance with chapter necessary by the respective
8, and the formulation, revision Committee Chairmen; and
and amendment of market
(f) Perform such other tasks as and further evolve enforcement
assigned by the PEM Board, of penalties consistent with the
the PEM Committees or the objectives of the WESM.
President of the Philippine
Electricity Market Corporation. 11. Rule 1.6.2 (d) is amended to read –
8. Rule 1.4.7.2 is added to read – (d) Assist the PEM Board or the
Enforcement and Compliance
The Market Assessment Group shall Officer to investigate and gather
be composed of an adequate number evidence of:
of personnel with the appropriate
knowledge, experience and (1)
Unusual or suspicious
qualifications necessary to provide behavior or activities of
timely and effective support and WESM Members in the spot
assistance to the PEM Committees. market;
9. Rule 1.4.7.3 is added to read – (2)

Suspected or alleged
breaches of the WESM Rules
The Market Assessment Group shall by WESM Members; and,
be a unit under the Office of the
President of the PEMC. (3) Suspected or alleged anti-
competitive behavior.
10. Rule 1.4.8 is added to read –
12. Rule 3.2.2.1 is amended to read –
The PEM Board shall create an
Enforcement and Compliance Officer A market trading node is a designated
to investigate alleged breaches of point in the market network
and enforce sanctions against the model where energy is bought or
System Operator, Market Operator, sold based on the schedules and
and other WESM Members. prices determined by the Market
Dispatch Optimization Model. A
To assist the Enforcement and market trading node where energy
Compliance Officer, an Enforcement is primarily sold into the WESM is
and Compliance Office shall be referred to as the generator node
created to perform the following while a market trading node where
functions: energy is primarily bought from the
WESM is referred to as a customer
a) Serve as a technical and node.
investigative support unit of the
Enforcement and Compliance 13. Rule 3.2.2.2 is amended to read –
officer;
Each market trading node defined
b) Establish a mechanism to under clause 3.2.2.1 shall:
promote consultation and
voluntary compliance of industry (a) Be assigned to a Trading
participants; and, Participant that intends to buy
or sell energy and is capable of
c) Continuously develop systems complying with the dispatch and
and procedures to deter settlement requirements in the
breaches of the WESM Rules WESM;
(b) Be associated with a revenue 16. Rule 3.5.13.6 is amended to read –
metering and remote
telemetering facilities capable of If a review conducted under clause
measuring all relevant incoming 3.5.13.5 concludes that a Trading
and outgoing energy deliveries Participant or the Market Operator
for the purpose of dispatch and or the System Operator has acted
settlement in the WESM; and inappropriately, and has thereby
imposed significant costs on other
(c) As much as possible, represent parties, the market surveillance
the connection point between committee may refer that matter to
the Network Service Provider the Enforcement and Compliance
and the Trading Participant. Officer under clause 7.2 or require
that Trading Participant or the
14. Rule 3.2.2.3 is amended to read – Market Operator or the System
Operator (as the case maybe) to pay
If the connection point of the Trading compensation in accordance with
Participant could not be represented clause 7.2.
in the market network model or if
particular market trading node must 17. Rule 3.6.1.4 (i) is amended to read –
be assigned to more than one Trading
Participant because the conditions Power flow equations, as defined
set in clause 3.2.2.2 are not met, by a DC approximation to an AC
the affected Trading Participants, power flow within AC sub-systems,
the Metering Services Provider and or equivalent mathematical
the Network Service provider will representation;
mutually agree on adjustments that
will be implemented by the Market 18. Rule 3.10.2 is amended to read –
Operator and the System Operator.
Determination of Ex-Ante Nodal
15. Rule 3.5.13.1 is amended to read – Energy Price
Subject to clause 3.5.13.3, the The ex-ante nodal energy price for
System Operator may recommend to each market trading node in any
the Market Operator that constraints trading interval shall, subject to
be imposed on the energy dispatch clause 3.10.5 be determined as the
of a specific facility which may have shadow price on the energy balance
the effect of fixing or bounding the equation or equivalent mathematical
generation or reserve scheduled formulation for that market trading
from the plant, if the System node formed in accordance with
Operator reasonably believes that clause 3.6.1.4 (c), in the dispatch
the generator offer, reserve offer optimization performed for that
or demand bid does not provide a trading interval in accordance with
valid representation of the actual or clause 3.8.1.
expected capability of that facility in
that trading interval, and where, in 19. Rule 3.10.6 is amended to read –
the reasonable opinion of the System
operator, such misrepresentation Determination of the Ex-Post Nodal
seems likely to impact materially on Energy Price
dispatch or pricing.

The ex-post nodal energy price for market dispatch optimization model
each market trading node shall be provided for in clause 3.9.9.1 (c)
determined as the shadow price
on the energy balance equation or 24. Rule 4.2. (a) is amended to read –
equivalent mathematical formulation
for that market trading node, formed A Customer in respect of any market
in accordance with clause 3.6.1.4 (c), trading node that is assigned to it
in a ex-post dispatch optimization through which it purchases electricity
performed, in accordance with from the spot market.
the timetable, to determine target
dispatch levels for the end of that 25. Rule 4.2 (b) is amended to read –
trading interval, assuming:
A Generation Company in respect
20. Rule 3.9 is amended to read – of a market trading node that is
assigned to it through which it sells
Treatment of Load Shedding, Excess electricity to the spot market; and
Generation and Reserve Violation
Before a Trading Participant who
Management Procedures for Reserve is a Direct WESM Member will be
Violation permitted by the Market Operator
to participate in the spot market in
22. Rule 3.9.9.1 is added to read – respect of a market trading node, the
Trading Participant shall ensure that:
Should either the dispatch
optimization or any market (a) Each of its assigned market
projection indicate a violation of a trading node has a metering
reserve requirement, the Market installation:
Operator shall:
(a) Promptly advise the System
Operator that it may be The Market Operator may refuse to
necessary to reduce the level of permit a Trading Participant who is a
the reserve requirement. Direct WESM Member to participate
in the spot market in respect of any
(b) Reduce the reserve requirement assigned market trading node if the
by the minimum amount to a metering installation associated
level that prevents a violation of with that market trading node does
that requirement. not comply with the provisions of
this chapter 4, the Grid Code and
(c) Solve the market dispatch Distribution Code.
optimization model with the
reduced reserve requirement. 28. Rule 4.4.2 is amended to read –
23. Rule 3.9.9.2 is added to read – A Generation Company or Customer

which is involved in the trading of
The prices determined in clauses energy shall not be registered as a
3.10.2, 3.10.6 and 3.10.10 will be Metering Services Provider for any
derived from the solution of the market trading node assigned to it.
29. Rule 4.5.2.1 is amended to read – (1) The correct party to whom
notice of an alleged breach
The Metering Services Provider shall of the WESM Rules by a
ensure that the metering point is WESM Member shall be
located as close as practicable to the given;
market trading node.
(2) The manner in which an
30. Rule 4.5.2.2 is amended to read – alleged breach is to be
investigated;
The Trading Participant, the
Network Service Provider and the (3) The manner in which a
Market Operator shall use their best breach is to be sanctioned;
endeavors to agree to adjust the [and]
metering data to allow for physical
losses between the actual metering (c) Other provisions on how
point and the relevant market disputes are to be resolved; and
trading node.
(d)
The appointment of an
31. Rule 4.8.3 is amended to read – Enforcement and Compliance
Officer, a Dispute Resolution
The only entities entitled to have Administrator and Dispute
either direct or remote access to Resolution Panel.
metering data on a read only basis
from the metering database or the 33. Rule 7.2.2. is amended to read –
metering register in relation to a
metering point are: Breaches of the WESM Rules by
WESM Members.
(e) Any Customer with respect to
the metering data in relation to 34. Rule 7.2.2.2 is amended to read –
the metering point registered to
it. The PEM Board shall direct the
Enforcement and Compliance Officer
32. Rule 7.1 is amended to read – to investigate the alleged breach as
soon as possible, when:
In line with the principles of self-
governance, expeditious, just (a) A WESM Member or the Market
and least expensive disposition Operator notifies the PEM Board
of disputes and considering the of an alleged breach of the
continuous nature of the transactions WESM Rules in accordance with
and operations of the WESM, this clause 7.2.2.1; or
chapter sets out:
(b) The PEM Board has a reasonable
(a) The responsibilities for ensuring ground to believe that the
that all WESM Members comply WESM Member has committed
with the WESM Rules; or is committing an act probably
in violation of the WESM Rules;
(b) The procedures on how the or
alleged breaches will be dealt
with including: (c)
The Market Surveillance
Committee submits a report
showing suspected breaches 37. Rule 7.2.2.5 is amended to read –
of the WESM Rules by WESM
Members. The notice shall be copy furnished to:
(a) The PEM Board: [and]

(b) The ERC, and
The Enforcement and Compliance
Officer shall issue a written notice to (c) The market operator within five
the WESM Member who is alleged business days from issuance of
to be in breach of the WESM Rules notice.
within five calendar days upon
receipt of notice from the PEM
Board. The Enforcement and Compliance
Officer after according the parties
36. Rule 7.2.2.4 is amended to read – due process shall determine whether
the WESM Member in question is in
The said notice issued by the breach of the WESM Rules.
shall: 39. Rule 7.2.2.7 is amended to read –
(a) Specify the nature of the breach If the Enforcement and Compliance
and the sanctions that may be Officer determines that a WESM
imposed if the breach is not Member has indeed breached a
remedied: WESM Rule, the Enforcement and
Compliance Officer shall require
(b) Require the WESM Member to in writing the WESM Member
explain in writing the alleged to remedy the breach within a
breach within ten (10) calendar reasonable period of time: Provided
days from receipt thereof; and that the period to remedy, as
determined by the Enforcement
(c) Order of the WESM Member
and Compliance Officer, shall take
who is in alleged breach to
in consideration all the attendant
immediately remedy the act
circumstances surrounding the
or omission comprising the
breach including the nature and
alleged breach or some other
extent of damages or injuries caused
remedial measure. If in the
as well as the quickest possible time
opinion of the Enforcement and
required to correct the breach.
Compliance Officer, exercising
due and necessary diligence, 40. Rule 7.2.2.8. is amended to read –
believes that some remedial or
preventive measure should be The Enforcement and Compliance
taken to abate the effects of the officer may further recommend
act or omission complained of; to the PEM Board that the WESM
Provided that (i) complying with Member determined to be in breach
the order shall not be deemed be suspended in accordance with
as an admission of guilt of the clause 3.15.7 if the said member has:
act or omission complained of,
and (ii) shall be recognized as a (a) Committed such a breach of the
mitigating factor if the complying WESM Rules and that the breach
party is later determined to be in cannot be rectified;
breach.
(b) Continued to breach the WESM be in breach of the WESM Rules all
Rules over a period of time; or information relating to the breach.
(c) Failed to remedy a breach after it 45. Rule7.2.4.2 is amended to read –

has been required to do so.
If the Enforcement and Compliance
The Enforcement and Compliance Officer makes a request for
Officer may recommend to the information under clause 7.2.4.1, it
PEM Board for approval the shall provide to the WESM Member
suspension of the party in breach to whom the request is made the
in accordance with clause 3.15.7. reasons for the request.
41. Rule 7.2.3.2 is amended to read – 46. Rule 7.2.4.3 is amended to read –
If the PEM Board considers that the If a WESM Member fails to comply
Market Operator or System Operator with a directive or request by the
has committed a breach of the WESM Enforcement and Compliance Officer
Rules, the PEM Board shall direct the for information under clause 7.2.4.1,
Enforcement and Compliance Officer the Enforcement and Compliance
to investigate the alleged breach as Officer may request the Market
soon as possible. Surveillance Committee to investigate
the matter and to prepare a report
42. Rule 7.2.3.3 is amended to read – or such other documentation as the
may determine.
officer shall issue a written notice to
the Market Operator or the System 47. Rule 7.2.7 is amended to read –
Operator within five business days
upon receipt of notice from the PEM Subject to clause 5.3, the
Board. Enforcement and Compliance Officer
shall publish a monthly report
43. Rule 7.2.3.4 is amended to read – setting out a summary for the period
covered by the report of all actions
The notice which the Enforcement
and rulings made during that period
and Compliance Officer is required to
in relation to the enforcement of the
issue under clause 7.2.3.3 shall:
WESM Rules.
(a) Specify the nature of the breach
and the sanctions which may
be imposed if the breach is not Appointment of an Enforcement and
remedied; and Compliance Officer
(b) Require the Market Operator or 49. Rule 7.2.8.1 is added to read –
the System Operator to explain
in writing the alleged breach The President of PEMC shall appoint
within a reasonable period of a person to act as Enforcement
time. and Compliance Officer with the
concurrence of the PEM Board.
Officer may request from the The PEM Board shall appoint a person
WESM Member who is alleged to to act as the Dispute Resolution
Administrator, who shall also be part 11 is added to read –
of the Dispute Resolution Group.
Philippine Electricity Market
51. Rule 7.3.2.5 is amended to read – Corporation or PEMC. The
corporation incorporated upon the
For the avoidance of doubt, the initiative of the DOE composed of all
dispute resolution group selected WESM Members and whose Board of
under clause 7.3.2.4 may include Directors will be the PEM Board.
any person the Dispute Resolution
Administrator considers to have the 54. Appendix A1.1 is amended to read
same qualifications stated in clause
7.3.2.2. Generation Offers:
52. Definition of Enforcement and (c) May include up to ten (10)

Compliance Officer in Rule 11 is energy offer blocks per
added to read – (aggregate) unit. The maximum
combined capacity of generation
Enforcement and Compliance and reserve offers must not be
Officer. A person tasked to perform less than the maximum available
compliance and enforcement capacity of the generator.
functions pursuant to clause 7.2,
including the investigation of alleged B. Effectivity
breach of the WESM Rules and
These amendments shall be effective fifteen
imposition of appropriate sanctions
(15) days, following its publication in two (2)
and such other functions as may,
national newspapers of general circulation.
from time to time, be assigned to
him by PEMC.
Metro Manila, Philippines. January 10, 2006
53. Definition of the Philippine Electricity
Market Corporation or PEMC in Rule RAPHAEL P. M. LOTILLA
WHEREAS, Rule 8.6.1 of the Wholesale market prices;

Electricity Spot Market (WESM) Rules
provide for the approval by the Department WHEREAS, after discussion, the PEM Board
of Energy (DOE) of proposals for any WESM has resolved on January 19, 2006 to approve
rules changes upon endorsement by the PEM for endorsement to the Department of Energy
Board; (DOE) the abovestated changes to the WESM
Rules;
WHEREAS, on December 20, 2005, the Interim
Rules Change Committee has approved a NOW, THEREFORE, pursuant to its authority
resolution endorsing for approval before under the WESM Rules, the DOE hereby
the PEM Board changes in the WESM Rules issues, adopts and promulgates the following
pertaining to the provisions on the over- amendments to the WESM Rules.
riding constraints and the determination of
A. Amendments to the WEMS Rules (a) The commercial interests of
Trading Participants; and
(b) Market priorities and objectives,
Subject to clause 3.5.13.3, the System as reflected by the relevant
Operator may require the Market market prices for energy and
Operator to impose constraints on reserves in the relevant reserve
the power flow, demand, energy region.
generation of a specific facility in
the Grid to address system security 3. Rule 3.10.5 is amended to read –
threat, to mitigate the effects of a
system emergency, or to address the In the event where no ex-ante prices
need to dispatch generating units can be determined or communicated
to comply with systems, regulatory within the timeframe specified by
and commercial tests requirements. the timetable, or the calculated
The System Operator may also prices are believed to be in error, as
relax existing constraints or system a result of load shedding, occurrence
requirements on power flows, of constraint violation coefficients, or
demand, energy generation and for any other reason:
reserves if the Market Operator is
unable to produce a feasible dispatch a) The market Operator may, as
schedule. soon as possible after the end
of a trading interval, issue a
The System Operator, in consultation pricing error notice, in which
with the Market Operator and the case, the ex-post quantities and
Trading Participants, shall develop the ex post prices determined
the criteria and procedures for according to clause 3.10.7 shall
dispatch of generating units that also serve as ex-ante quantities
are required to run as a result of and ex-ante prices. If no ex-post
the imposition of relaxation of prices can be determined the
constraints stated in the preceding calculated prices are believed
paragraph, and the manner for to be in error as a result or
compensating said units. the imposition or relaxation of
constraints pursuant to clause
2. Rule 3.5.13.2 is amended to read – 3.5.13.1, the Market Operator
shall re-run the Market Dispatch
In situations where offers are Optimization Model.
structured in such a way that
provision of any level of reserve B. Effectivity
services prohibits the simultaneous
provision of very low or high levels These amendments shall be effective fifteen
of generation, the System Operator (15) days following its publication in two (2)
may also recommend to the Market national newspapers of general circulation.
Operator that constraints should be
imposed or relaxed so as to allow RAPHAEL P.M. LOTILLA
generating systems to operate in Secretary
a range which allows increase of Metro Manila, Philippines, May 5, 2006
either reserve allocation or energy
generation, as appropriate, having
regard to:
WHEREAS, Rule 8.6.1 of the Wholesale Notwithstanding clause 1.4.9, except

Electricity Spot Market Rules (WESM) Rules for liability arising out of conduct
provide for the approval by the Department involving malice, manifest partiality,
of Energy (DOE) of proposals for any changes bad faith, gross incompetence or
in the WESM rules upon the endorsement gross negligence, if the PEM Board
by the Board of Directors of the Philippine is or the members thereof are made
Electricity Market Corporation (PEM Board); liable to pay any amount for loss or
damage suffered or incurred in the
WHEREAS, on April 20, 2006, May 16, exercise of its functions under the
2006 and June 15, 2006, the Interim WESM Rules and WESM Manuals,
Rules Change Committee has approved a the PEM Board or the members
resolution endorsing for approval by the PEM thereof shall be indemnified for the
Board certain changes in the WESM Rules full amount adjudged; and, for costs
concerning provisions on limiting the liability or expenses incurred by that person
of the PEM Board, dispute resolution, billing defending himself in the related
and settlements and metering; proceedings.
WHEREAS, after discussion, the PEM Board 3. Clause 3.15.3 is amended to read –
has resolved on June 6, 2006 and June 21,
2006 to approve for endorsement to the DOE The security provided by a WESM
the aforesaid changes to the WESM Rules; Member under this clause 3.15 shall
be either:
NOW THEREFORE, pursuant to its authority
under the WESM Rules, the DOE hereby (a) A bank guarantee in a form and
issues, adopts and promulgates the following from a bank acceptable to the
amendments to the WESM Rules. Market Operator, or
A. WESM Rules (b) Another immediate, irrevocable

and unconditional commitment
1. Incorporation of Clause 1.4.9 to read in a form and from a bank or
– other institution acceptable to
the Market Operator, or
The members of the PEM Board are
not liable for any loss or damage (c) Surety bond issued by a surety
suffered or incurred by a Participant or insurance company duly
or any other person unless the PEM accredited by the Office of the
Board or any of its members, as the Insurance Commissioner of the
case may be, acted with malice, Philippines; or
manifest partiality, bad faith, gross
incompetence or gross negligence. (d) Such other forms of security
or guarantee acceptable to the
2. Incorporation of Clause 1.4.10 to Market Operator.
read –

4. Clause 3.15.8.3 is amended to read – Notwithstanding clause 7.3.13,
except for liability arising from
The trading limit for a WESM Member conduct involving malice, manifest
at any time shall not be greater than partiality, bad faith, gross
95% of the total value of the security incompetence or gross negligence, if
provided by the WESM Member to the Dispute Resolution Administrator,
the Market Operator under clauses the dispute resolution panel or the
3.15.3 (a), (b) and (c). members thereof are made liable to
pay any amount for loss or damage x
5. Clause 4.6.2.1 is amended to read xx
The MSP that is contracted by the 7. The definition of Billing Period under
MTP for a particular metering point Chapter 11 is amended to read
shall retrieve the metering data
from the meter and transmit the Billing period. The period of one
data to the Market Operator for month commencing at 00:00 hours
billing and settlement. of the twenty sixty (26th) day of each
calendar month to 24:00 hours of
However, the MSP shall not make, the twenty-fifth (25th) day of the
cause or allow any alteration to next calendar month.
the original stored meter data
as retrieved in the metering B. Separability Clause
installation.
If for any reason, any section or provision
At its option, the Market Operator of this Department Circular is declared
may also directly retrieve the meter unconsititutional or invalid, such parts
data. not affected shall remain in full force and
effect.
The MSP with a Certificate of
Authority from ERC and registered C. Effectivity
with MO must be capable of sending
meter data in the required format This Department Circular shall take effect
of MO. An MSP must have its own immediately following its publication in two
Meter Data Retrieval System and (2) newspapers of general circulation.
compatible with the MO Meter Data
Collection System. Energy Center, Fort Bonifacio, Taguig City,
Metro Manila, July 20, 2006.
6. Clause 7.3.14 is amended to read –
Secretary

WHEREAS, Rule 8.6.10 of the Wholesale 2. Incorporation of Clause 1.6.3 to read

Electricity Spot Market Rules (WESM) Rules –
provide for the approval by the Department
of Energy (DOE) of proposals for any changes 1.6.3 Design and Promulgation of
in the WESM rules upon the endorsement Penalties
of the Board of Directors of the Philippine
Electricity Market Corporation (PEM Board); The Market Surveillance Committee
(MSC) will design and promulgate
WHEREAS, on June 29, 2006, July 18, 2006, the penalty levels and the
and July 27, 2006, the Interim Rules Change appropriate range of penalties,
Committee approved a resolution endorsing for breaches and non-compliance
for approval by the PEM Board changes in of WESM Rules, anti-competitive
the WESM Rules pertaining to the provisions behavior, and abuse of market
on the powers of the PEM Board, design and power.
promulgation of penalties, submission of
bilateral contract data, payment to trading The MSC will conduct consultations
participants, and composition of the rule with the Rules Change Committee
change committee; and the PEM Board in its formulation
of the penalty levels and appropriate
WHEREAS, after discussion, the PEM Board range of penalties.
resolved on August 9, 2006 and September
27, 2006 to approve for endorsement to The penalty scheme and any
the DOE the aforementioned changes to the changes made by the MSC will be
WESM Rules; published in the Market Information
Website and a copy furnished
NOW THEREFORE, pursuant to its authority to the PEM Board and the Rules
under the WESM Rules, the DOE hereby Change Committee. The MSC shall
issues, adopts and promulgates the following specify the date when the penalties
amendments to the WESM Rules become effective, which shall in no
case be earlier than the date of its
A. WESM Rules publication.
1. Incorporation of Clause 1.4.5.2 (f) The penalty scheme will be reviewed

and (g) to read – by the MSC annually.
(f) Approve and promulgate Market The amount of the financial penalty
Manuals, including amendments shall be determined in consideration
and revisions thereto; and of:
(g) Issue resolutions or advisories on 1. the circumstances in which the

any matter related to the WESM Breach occurred;

2. the severity of the Breach; After the Market Operator is to
be paid under clause 3.14.6 and
3. the duration of the Breach and in accordance with the schedule
the rate of recurrence; set in the billing and settlements
timetable, the Market Operator
4. the extent to which the Breach shall pay to each WESM Member in
was caused by inadvertence, cleared funds the settlement amount
negligence, or its deliberateness; (if any) stated to be payable in that
WESM Member’s final statement.
5. the actions of the party upon
becoming aware of the Breach; The maximum total payment which
the Market Operator is required to
6. whether the party disclosed pay in respect of any billing period is
the matter to the MSC or ECO equal to the aggregate of –
on its own accord or only when
prompted to do so; a. the total payments actually
received from WESM Members
7. whether the party complied in accordance with Clause 3. 14.
with all preventive actions or 6; plus
remedial measures prescribed
by the ECO; b. the total amount that the Market
Operator is able to actually draw
8. any benefit that the party from the prudential security of
obtained or expected to obtain the defaulting WESM Members
as a result of the Breach; in accordance with clause 3.15
if one or more WESM Member
9. the impact of the Breach on is in default; plus
other WESM members and the
WESM as a whole; and c. other sources of funds which the
PEM Board may approve to be
10. other factors as the ECO or PEM the paid to the WESM Members
Board considers appropriate. if the total amount drawn
from the prudential security
3. Clause 3.13.1.1 (b) is further deposit of the defaulting WESM
amended to read – Members is insufficient to cover
the defaulted amounts.
(b) Identify the counter party to
the bilateral contract and the party If it becomes necessary for the
that will pay the line rental trading Market Operator to draw upon
amount associated with the bilateral the prudential security of a
contract quantity submitted: defaulting WESM Member in
provided, however, that in case only accordance with clause 3.15,
one of the bilateral counter parties the corresponding payments to
is registered as a Direct WESM the WESM Members entitled to
Member, that WESM Member shall be paid shall be made only after
be the party that will pay the line the Market Operator is actually
rental to the Market Operator; and able to draw on the prudential
security but not later than the
4. Clause 3.14.7 is further amended to date specified in the billing and
read – settlement time table.
If the total payments actually appointed to the Rule Change
received or drawn from the Committee at any time if:
prudential security by the
Market Operator for a particular xxx
billing period is insufficient
to pay for the total amounts (c) The person ceases to represent
payable to the WESM Members, the sectoral group or other groups,
the total payments received or the company to which he has
and drawn shall be distributed been appointed; or
and paid to the relevant WESM
Members in proportion to the 7. The definition of Market Manual
amount payable to them for under Chapter 11 is incorporated to
that billing period. read –
The shortfall shall be paid upon Market Manuals. A manual of

collection from the defaulting specific procedures, systems or
WESM Member but not later protocols for the implementation of
than the date specified in the the WESM Rules.
billing and settlement time
table. B. Separability Clause
5. Clause 8.2.3 is amended to read – If for any reason, any section or provision
of this Department Circular is declared
Each member of the Rule Change unconstitutional or invalid, such parts not
Committee shall: affected shall remain in full force and effect.
a) Be appointed by the PEM Board C. Effectivity

in consultation with industry
participants; and This Department Circular shall take effect
immediately following its publication in
b) For the sectoral member or two(2), newspapers of general circulation.
other groups, not be a member
of the PEM Board. Energy Center, Fort Bonifacio, Taguig City,
Metro Manila, 09 November 2006
The PEM board may terminate (Sgd.) RAPHAEL P. M. LOTILLA
the appointment of any person Secretary

WHEREAS, Rule 8.6 of the Wholesale [b]

The achievement of the
Electricity Spot Market (WESM) Rules objectives of the Act and WESM;
provides for the approval by the Department and
of Energy (DOE) of proposals for any WESM
Rules changes upon endorsement by the PEM [c] The standards by which the
Board; Market Operator has been
selected in accordance with
WHEREAS, on 24 September 2008, 8 and terms of reference and/or the
14 October 2008, the Interim Rules Change contract, of its selection as an
Committee (IRCC) approved for submission Independent Market Operator.
to the PEM Board changes in the WESM
Rules to address market issues in the WESM Every year, the PEM Board shall
identified by the Special WESM Rules Review publish a Market Operator
Committee; Performance Report in
accordance with herein clause.
WHEREAS, after discussion, the PEM Board
resolved on 13 January 2009 to approve for The Market Operator’s
endorsement to the DOE the above stated performance standards shall be
changes to the WESM Rules; reviewed and approved by the
DOE.
NOW THEREFORE, pursuant to its authority
under the WESM Rules, the DOE hereby 2. Clause 1.5.1 is amended to read –
issues, adopts and promulgates the following
amendments to the WESM Rules. 1.5.1 Appointment of the PEM
Auditor
A. Amendments to the WESM Rules
12.5.1.1 The PEM Board shall appoint
1. Clause 1.3.2.3 is amended to read – a PEM Auditor with such skills
and expertise, and on such terms
1.3.2.3. The PEM Board shall develop and conditions, as the PEM Board
performance standards which reasonably deems to be appropriate,
monitor and provide an indication of, taking into consideration the nature
the Market Operator’s performance of the obligations and functions of
with respect to: the PEM Auditor, as set out in clause
1.5.2 and clause 5.2.6.
[a]
The Market Operator’s
responsibilities under the Act, 1.5.1.2 The PEM Auditor shall not
its Implementing Rules and currently or has not been employed
Regulations (IRR), the WESM within one year prior to the
Rules, the Philippine Grid Code nomination date by any Philippine
(the Grid Code) and all other electric power industry participants.
applicable laws, rules and
regulations;
1.5.1.3 The PEM Auditor must have determination of the market
sufficient relevant experience in one re-run prices. Such procedures
or more of the following fields: shall provide the criteria and
conditions for the market
(a) Power industry; re-run and the timetable for
(b) Economics; implementation.
(c) Risk management;
(d) Information technology and 7. Clause 3.13.1.1 (c ) is amended to
information systems; and/or read –
(e) In such other fields as may be
relevant to and required in the (a) x x x
performance of audits. (b) x x x
(c) Provide evidence that the
3. Clause 1.5.2 is amended to read – counterparty to the bilateral
contract agrees with the
1.5.2. Responsibilities of the Auditor submission made under this
clause 3.13.1.1. Such evidence
xxx shall be attached to the
submission of schedule in
4. Clause 1.5.3 is added to read –
3.13.1.1 (a).
1.5.3 Review of WESM Rules
xxx
5.2.6.1 The PEM Auditor shall
5. Clause 3.6.2.4 is added to read – arrange for a spot market audit to
be performed once each quarter, or
3.6.2.4 The Market Operator, such other period as determined by
in coordination with the System the PEM Auditor.
Operator, and in consultation with
the WESM Members shall regularly 5.2.6.2 x x x
review the appropriateness and
applicability of constraint violation 5.2.6.3 The PEM Auditor may
coefficients levels in accordance engage, subject to the PEM Board
with clause 10.4.11.1; and revise approval, the services of a qualified
as may be necessary to ensure that third party Auditor as outlined in
it reflects the actual conditions of clause 1.5.2 and clause 5.2.6.2. The
the network. Such revisions shall selection of third party Auditors
be approved by the PEM Board and shall be approved by the PEM Board.
shall be published in accordance
with the timetable. 5.2.6.4 The PEM Auditor shall
prepare a report on the results of
6. Clause 3.10.5 is amended to add – the spot market audit. The said
report shall be made available to the
3.10.5 x x x
DOE, the ERC, the PEM Board and
a) x x x WESM members.
The Market Operator 9. Clause 5.3.7 is added to read –

shall develop and publish
the procedures for the 5.3.7. Timetable

The Market Operator shall develop Every year, such classifications shall be
the timetable for the publication of reviewed and amended, if necessary.
market information in accordance
with Chapter 5 of the WESM Rules. This classification shall be approved by the
DOE.
10. Clause 8.6.4.2 is amended to read –
B. Separability Clause
8.6.4.2 Upon recommendation
of the Rules Change Committee, Should any provision of this Department
the PEM Board shall ratify the Circular be declared invalid or
classification system of rule change unconstitutional, the other provisions, so
proposals developed by the far as they are separable, shall remain in
Committee pursuant to clause 8.2.9 force.
that will delineate proposals that
C. Effectivity
can be implemented upon PEM
Board’s approval and proposals that This Department Circular shall take effect
will require DOE’s approval prior to fifteen (15) days following its publication in
implementation. two (2) newspapers of general circulation.
All WESM Rules changes Signed this 21st day of March 2010 at the DOE,
implemented prior to DOE’s approval Energy Center, Merritt Road, Fort Bonifacio,
shall be processed and submitted to Taguig City, Metro Manila.
the DOE for approval; otherwise,
the effectivity of such WESM Rules
changes shall be no more than six (6) ANGELO T. REYES
months. Secretary
WHEREAS, Rule 8.6.10 of the Wholesale endorsement to the Department of Energy

Electricity Spot Market (WESM) Rules (DOE) the abovestated changes to the WESM
provides for the approval by the Department Rules;
of Energy (DOE) of proposals for any WESM
rules changes upon the endorsement by the NOW THEREFORE, pursuant to its authority
PEM Board; under the WESM Rules, the DOE hereby
issues, adopts, and promulgates the following
WHEREAS, on 7 April 2010, the Rules Change amendments to the WESM Rules:
Committee (RCC) has approved a resolution
A. Amendments to the WESM Rules.
endorsing for approval before the PEM
Board proposed changes in the WESM Rules Clause 7.2.9 is added to read as:
pertaining to the Designation of a Compliance
Officer for WESM Members, Market Operator 7.2.9 Designation of a Compliance
and System Operator; Officer for WESM Member, Market
Operator and System Operator.
WHEREAS, after discussion, the PEM Board
has resolved on 24 June 2010 to approve for 7.2.9.1 Each WESM Member,
the Market Operator, Compliance Office
the System Operator, (ECO), all matters
Metering Service Provider relating to the
and any other WESM enforcement and
Service Provides shall compliance of
designate a Compliance their respective
Officer in their respective organization,
organizations. including the
provision of
7.2.9.2 The Compliance Officer the necessary
shall: information and
data, as may be
a) Monitor and
required by any of the
undertake necessary
WESM Governance
activities to ensure
Committees and by
the full compliance
the ECO.
of their respective
organization to the d) Submit a report to
EPIRA, the EPIRA the ECO concerning
Implementing Rules their respective
and Regulations, organization’s
WESM Rules, and compliance with
the WESM Market WESM Rules and
Manuals; and WESM Market
develop necessary Manuals on an annual
procedures and basis or as may be
guidelines for this determined by the
purpose. ECO or any of the
WESM Governance
b) From time to time,
Committees.
if the Compliance
Officer deems B. Separability Clause
it necessary or
appropriate, If for any reason, any section or provision
propose policies or of this Department Circular is declared
amendments to the unconstitutional or invalid, such parts
WESM Rules and/ not affected shall remain in full force and
or WESM Market effect.
Manuals to enhance
or develop the C. Effectivity
WESM enforcement
This Department Circular shall take effect
and compliance,
fifteen (15) days following its publication in
with the objective
two (2) newspapers of general circulation.
of promoting good
commercial and
Signed this 30th day of June 2010 at the DOE,
technical practices.
Energy Center, Merritt Road, Fort Bonifacio,
c) Be responsible in Taguig City, Metro Manila.
facilitating and
coordinating with the JOSE C. IBAZETA
WESM Enforcement Acting Secretary
DEPARTMENT CIRCULAR NO. 2005–11–008
CALLING ON ALL ELECTRIC INDUSTRY PARTICIPANTS TO PARTICIPATE IN THE LIMITED LIVE DISPATCH
OPERATIONS OF THE WHOLESALE ELECTRICITY SPOT MARKET
WHEREAS, Section 30 of Republic Act No. WHEREAS, in order to meet the target date
9136. Otherwise known as the “Electric of WESM’s commercial operations in January
Power Industry Reform Act of 2001” or 2006 and in accordance with the schedule
“EPIRA”, enjoined the Department of Energy approved by the PEM Board, the Live
(DOE) to establish the Wholesale Electricity Dispatch Operations will be conducted within
Spot Market (WESM) that would facilitate a the period of 15 November to 15 December
transparent, competitive and reliable market 2005, with actual schedules to be provided by
for electricity; PEMC to all industry participants from time to
time;
WHEREAS, significant progress has been
made towards the commencement of WESM NOW, THEREFORE, premises considered, the
commercial operation and, at this final phase DOE hereby calls on all industry participants,
of the Trial Operation Program (TOP) for especially the TOP participants, to actively
Luzon, the WESM is now ready to conduct a participate in the WESM Live Dispatch
limited Live Dispatch Operations to test the Operations and cooperate with the PEMC on
implementation of the Security-Constrained the implementation and dispatch schedule,
Dispatch Schedule (SCED) produced by the parameters and terms, with the end in view of
market dispatch optimization model in the bringing about WESM commercial operations
Market Management System (MMS); in Luzon in January 2006.
WHEREAS, for the effective undertaking This Department Circular shall take effect
of this final phase of the TOP for Luzon and immediately and shall remain in effect until
to assist the Philippine Electricity Market otherwise revoked.
Corporation (PEMC), currently chaired
by the DOE, in putting in place all the Fort Bonifacio, Taguig, Metro Manila.
necessary components for the successful 11 November 2005
implementation of the WESM, there is a need
for the active participation of the National RAPHAEL P. M. LOTILLA
Transmission Corporation (TransCo) as the Secretary
System Operator together with other industry
participants;


CREATION OF A TASK FORCE TO COORDINATE EFFORTS IN RELATION TO THE WESM COMMERCIAL
OPERATION AND DIRECTING ALL ELECTRIC INDUSTRY STAKEHOLDERS TO ACCOMPLISH THE SELF-
ASSESSMENT AND CERTIFICATION FOR READINESS TO PARTICIPATE IN THE WESM

WHEREAS, Section 30 of Republic Act No. field for all industry participants, there is
9136, otherwise known as the “Electric a need for a direct feedback mechanism
Power Industry Act of 2001” or “EPIRA” to assess the overall readiness of various
enjoined the Department of Energy (DOE) industry participants as would enable
to establish the Wholesale Electricity Spot them to participate in the market as well
Market (WESM) that would facilitate a as allow future market participants and
transparent, competitive and reliable market service providers to assess and certify their
for electricity; own readiness to participate after WESM
commences commercial operation;
WHEREAS, pursuant to the said mandate,
the DOE constituted, among others, the NOW, THEREFORE, premises considered,
WESM Steering Committee on 31 May 2004, the DOE hereby constitutes the Task Force
through Department Order No. 2004-06-007, on WESM Commercial Operation Readiness
to monitor the timeline, action plans and the (TF-COR) and directs all industry participants
overall target implementation of the WESM, to accomplish the initial self-assessment and
and ensure the effective coordination of certification forms in accordance with this
various activities amongst the government Department Circular.
agencies or functional units, industry
participants and such other entities involved SECTION 1. Creation of the TASK FORCE
in the WESM; on WESM COMMERCIAL OPERATION
READINESS (TF-COR). To facilitate the
WHEREAS, significant progress has been regular monitoring and institute a feedback
made towards the commencement of WESM mechanism amongst responsible parties to
commercial operation and the fundamental facilitate the commercial operation of the
components of the market are expected to be WESM, a task force is hereby created to
completed or finalized, including: the Market coordinate and report to the WESM Steering
Management System (MMS), formation of Committee issues or recommendation
the respective committees, the processing affecting the readiness of individual
of its filing with the Energy Regulatory participants/their respective sectors for
Commission (ERC) for the approval of the the commencement of WESM commercial
Price Determination Methodology; operation.

WHEREAS, considering this progress made SEC. 1.1. Composition of the Task
and to assist the Philippine Electricity Force. The TF-COR shall be composed
Market Corporation (PEMC), currently of one representative and one alternate
chaired by the DOE, in putting in place all representative from each of the following
the necessary components for the successful agencies/entities:
implementation of the WESM and in the
interest of a transparent and level playing

Chairman: Department of Energy SEC. 1.3 Responsibilities of Each Functional
Co-Chairman:
Philippine Electricity Market Unit. In addition to the respective
Corporation-Market Operator (PEMC) responsibilities that may be assigned to
National Transmission Corporation
Members:
(TransCo)
each member of the TF-COR, each agency/
Power Sector Assets and Liabilities entity shall provide, subject to availability
Management Corporation (PSALM) and internal approval processes, the
National Power Corporation (NPC) necessary personnel and resources to lend
National Electrification Administration

(NEA) administrative support to the TF-COR as may
PEPOA be necessary.
PHILRECA
MERALCO SEC. 1.4 Meetings. The TF-COR shall meet
PIPPA twice a month or more often at such other
time as the DOE directs in order to assess
SEC. 1.2 Functions of the Task Force. The TF- the status of each sector’s readiness. Within
COR shall exercise the following functions: 15 calendar days from the effectivity of this
Department Circular, each member of the TF-
(a) Provide regular updates every two (2) COR shall submit the list of its representative/
weeks to the WESM Steering Committee alternate representative to the DOE. Within
on the progress and status of the industry 10 calendar days thereafter, the DOE shall
participants’ respective readiness for the convene the first meeting of the TF-COR.
commercial operation of the WESM;
SEC. 2 Categories of WESM Participants. The
(b) Coordinate efforts amongst industry following are the parties required to conduct
participants and their respective sectors, their respective readiness assessment.
convene and organize meetings for
this purpose and implement a regular, (1) Generation Companies;
efficient and direct feedback mechanism
amongst responsible parties; (2) Network Service Providers –

(c) Facilitate mutual cooperation and (a) Electric Cooperatives;
sharing of information amongst the (b) Distribution Utilities;
individual participants and provide the
DOE necessary access to information on (3) Distribution Utilities;
matters relevant to the determination
of the basis for the declaration of the (4) Customers;
commencement of WESM commercial
operation; (5) Philippine Electricity Market Corporation;

(d) Identify issues in relation to the (6) National Transmission Corporation as –
preparation of the industry for WESM
commercial operation and provide (a) System Operator;
recommendations for DOE Secretary’s (b) Metering Service Provider;
consideration towards the resolution of (c) Grid Operator; and
these issues;
(7) Suppliers/Aggregators
(e) Perform such other functions as may be
necessary and delegated to it by the DOE SEC. 3. Compliance. All industry participants
for the successful to commencement of are each required to submit their respective
WESM commercial operation. initial self-assessment to the DOE, as chair

of the TF-COR, within 10 calendar days from SEC. 6. Confidentiality. Any confidential
the effectivity of this Circular. Every two information obtained by the TF-COR in the
weeks thereafter, unless the TF-COR provide course of its review/assessment shall be
otherwise, all industry participants shall maintained in full confidentiality and will be
submit to the TF-COR an update on their used solely for the purposes expressed in this
initial assessments, indicating any problem Department Circular.
and/or actions taken thereon.
SEC. 7. No amendment or repeal of existing
SEC. 5. Readiness of ECs. In the case of laws. Nothing in this Department Circular
Electric Cooperatives (ECs), the National shall be construed as to amend, supplant, or
Electrification Administration (NEA), as repeal any of the mechanisms or institutions
member of the TF-COR, must henceforth already existing or responsibilities already
assume primary responsibility to monitor allocated and provided for under any existing
the readiness of ECs and provide training law, rule or contract. However, to the
programs and other necessary activities to extent necessary, previous issuances by this
encourage the ECs’ effective participation Department in relation to the subject matter
in the WESM. Towards this end, the NEA herein shall be deemed amended accordingly.
shall be primarily responsible for the
preparation and submission by the ECs of This Department Circular shall take effect
the regular updates provided in Section 3 immediately after its publication in two (2)
and NEA shall also provide the TF-COR with newspapers of general circulation and shall
its recommendations and/or actions taken to remain in effect until otherwise revoked.
address any problem indicated by the ECs in
their updated assessments. Fort Bonifacio, Taguig, Metro Manila, 11
November 2005.

DESIGNATING THE NATIONAL POWER CORPORATION AND THE POWER SECTOR ASSETS AND
LIABILITIES MANAGEMENT CORPORATION AS THE DEFAULT WHOLESALE SUPPLIERS FOR THE
PHILIPPINE WHOLESALE ELECTRICITY SPOT MARKET (WESM)
WHEREAS, the Department of Energy (the the autonomous market group operator (the
“DOE”) is mandated under Section 30 of “AGMO”);
Republic Act No. 9136, otherwise known as
the “Electric Power Industry Reform Act of WHEREAS, on 28 June 2002, the DOE, upon
2001” or “EPIRA”, to establish the Wholesale the joint endorsement of the electric industry
Electricity Spot Market (the “WESM”) that participants, promulgated the Wholesale
would facilitate a transparent, competitive Electricity Spot Market Rules (the “WESM
and reliable market for electricity; Rules” through DEPARTMENT CIRCULAR
NO.2002-06-003;
WHEREAS, pursuant to its mandate, the
DOE, jointly with the electric power industry WHEREAS, on 18 November 2003, on the
participants, is tasked to formulate the initiative of the DOE, the Philippine Electricity
detailed rules for the WESM, and to organize Market Corporation (the “PEMC”), was
incorporated as a non-profit, non-stock time monitoring of their demand, connection
corporation with membership comprising and generation status.
of an equitable representation of electricity
industry participants and chaired by the DOE, WHEREAS, at the start of the WESM not all
to be the AGMO as well as governing arm of electric industry participants would be able
the WESM; to meet these technical and commercial
requirements, and, as such, would not be able
WHEREAS, the PEMC, as the AGMO, has been to meet the qualifications to trade directly in
tasked to undertake the preparatory work for the WESM;
the establishment of the WESM as well as the
initial operations of the WESM; WHEREAS, the WESM Rules allow qualified
entities to become indirect WESM members
WHEREAS, the EPIRA envisions that there and to trade in the WESM through direct
shall be central dispatch of all generation WESM members;
facilities connected, directly or indirectly, to
the transmission system, and such central WHEREAS, the entities eligible to become
dispatch is to be implemented by the National customers in the WESM but which may
Transmission Corporation in accordance not be able to meet the qualifications for
with the dispatch schedule submitted by the WESM membership are distribution utilities
Market Operator of the WESM, as provided and other entities directly connected to
for in Section 9 in relation to Section 30 of the the national grid which are currently being
EPIRA; supplied electricity by the National Power
Corporation (the “NPC”) and that their
WHEREAS, Section 30 of the EPIRA mandates bilateral power supply contracts will not be
the DOE, jointly with the industry participants, superseded by the implementation of the
to formulate the detailed rules of the WESM, WESM;
which shall include, among other matters, the
procedures for establishing the merit order WHEREAS, the NPC and the Power
dispatch instructions for each time period; Sector Assets and Liabilities Management
Corporation (the “PSALM”) have separately
WHEREAS, consistent with the legal mandate registered to become direct WESM members
to implement central dispatch, the WESM and will allocate between themselves the
Rules implement a gross pool market whereby bilateral power supply contracts of NPC;
all energy transactions are scheduled through
the market by the Market Operator and, for NOW THEREFORE, premises considered the
this purpose, all persons or entities that inject DOE hereby declares –
or withdraw electricity into the national grid
must become members of the WESM; Section 1. Default Wholesale Supply,
Definition. Default wholesale supply in the
WHEREAS, trading in the WESM requires WESM refers to the supply of electricity to
compliance with certain technical and cover the supply imbalances (the “supply”
commercial requirements including the imbalances”) of customers in the WESM.
requirements for creditworthiness or Supply imbalances may either be contractual
prudential requirements, communication or schedule imbalances.
facilities to facilitate the exchange of
information between the Market Operator Section 1.01. Contractual imbalances refer
and the trading participant, revenue metering to the difference between the quantity of
facilities to enable measurement of energy electricity covered by the bilateral power
withdrawn or injected into the grid, and supply contract/s of a customer and its actual
remote telemetering facilities to enable real metered quantity.
Section 1.02. Schedule imbalances occur in wholesale suppliers upon commencement of
cases where the customer has fully contracted WESM commercial operations.
for its requirements but its actual metered
withdrawal of electricity is greater or lesser This designation shall not preclude the
than its contracted quantity. The difference subsequent designation of other default
is the schedule imbalance. wholesale suppliers.
Section 2. Coverage. The default wholesale Section 5. Guidelines and Procedure. The
supply arrangement will apply to the following NPC, PSALM and PEMC are hereby directed
customers in the Luzon and the Visayas grid – to develop pertinent arrangements and
procedures to carry out the default wholesale
Section 2.01. Distribution utilities, including supply arrangement consistent with
electric cooperatives, private distribution applicable laws, rules and regulations.
utilities, and local government utilities; and
Section 6. No amendment or repeal of
Section 2.02. End users of electricity, other existing laws.. Nothing in this Circlar shall be
than distribution utilities, which have construed as to amend, supplant, or repeal
been permitted by the NPC or such other any of the mechanisms or institutions already
competent government agency to connect existing or responsibilities already allocated
directly to the national grid. and provided for under any existing law, rule
or contract.
Section 3. Period of Effectivity. The default
wholesale supply arrangement shall be Section 7. Effectivity and Publication. This
implemented for a period not longer than Circular shall be effective immediately upon
one (1) year from the start of commercial its publication in a newspaper of general
operations of the WESM in Luzon for Luzon circulation. The PEMC is hereby directed to
customers and from the start of commercial publish this Circular in the Market Information
operations of the WESM in Visayas for Visayas website.
customers.
This Circular shall remain in effect until
Section 4. Designation of the WESM otherwise revoked.
Default Wholesale Supplier. As an interim
measure to ensure the smooth transition Taguig, Metro Manila, 22 June 2006.
from the current supply arrangements to the
implementation of the WESM, the NPC and RAPHAEL P.M. LOTILLA
the PSALM shall be designated as the default Secretary

TERMINATING THE DEFAULT WHOLESALE SUPPLIER ARRANGEMENT FOR THE PHILIPPINE

WHOLESALE ELECTRICITY SPOT MARKET (WESM) AND DECLARING A DISCONNECTION POLICY
WHEREAS, the Department of Energy (the measure to ensure the smooth transition
“DOE”) is mandated under Section 30 of from the current supply arrangements to the
Republic Act. No. 9136, otherwise known as implementation of the WESM;
the “Electric Power Industry Reform Act of
2001” or “EPIRA”, to establish the Wholesale WHEREAS, commercial operations of the
Electricity Spot Market (WESM) that will WESM commenced on 26 June 2006;
facilitate a transparent, competitive, and
reliable electricity market in the country; WHEREAS, as of 28 April 2010, PSALM has
successfully bid out an aggregate rated
WHEREAS, on 21 June 2006, the DOE issued capacity of 3,318.23 MW with which accounts
Department Circular NO. 2006-06-008 for the 87.82% of the total 3,778.23 MW rated
declaring the launching of the WESM in the capacity of PSALM/NPC owned generating
Luzon Grid and the terms and conditions for assets in the Luzon and Visayas grids; also,
the commencement of the full commercial PSALM has bid out 68.22% or 3,345.75 MW
operations of the WESM; of the total 4,904.55 MW capacity of NPC-IPP
contracts in the Luzon and Visayas grids;
WHEREAS, at the start of the commercial
operation of WESM, not all electric industry WHEREAS, the privatization of the significant
participants, particularly the Distribution portion of NPC generating plants and other
Utilities (DUs), were able to meet the power assets of PSALM, since the effectivity
technical and commercial requirements to of the DWS, has significantly affected the
directly trade in the WESM; ability of PSALM and NPC to supply the energy
requirements of its customers;
WHEREAS, on 22 June 2006, the DOE issued
Department Circular NO.2006-06-0009 WHEREAS, there is a need to terminate the
designating the National Power Corporation DWS since NPC and PSALM can no longer
(NPC) and Power Sector Assets and Liabilities economically and effectively perform their
Management Corporation (PSALM) as the duties as the default wholesale supplier;
Default Wholesale Suppliers (DWS) to supply
the electric power supply imbalances of WHEREAS, the termination of the DWS
customers in the WESM; arrangement will cause distribution utilities
(DUs) to have no default supplier of electricity
WHEREAS, Section 3 of Department Circular for the imbalances of their contract and shall
NO.2006-06-0009 states that the DWS likewise leave them without any supplier, in
Arrangement shall be implemented for a case they fail to enter into a supply contract
period not longer than one (1) year from the with a generator or other service providers;
start of commercial operations of the WESM
in Luzon; WHEREAS, to ensure continuous supply of
electricity within its franchise area, a DU is
WHEREAS, Section 4 of Department Circular encouraged to enter into a bilateral contract
NO.2006-06-0009 states that the designation with a generator or other service provider,
of NPC and PSALM as the DWS is an interim in a least cost manner, to cover its energy
requirements; 2.1 Disconnection of Non-WESM Members.
Pursuant to Section 2.2.4.2 of the WESM
WHEREAS, DUs can withdraw electricity from Rules, all persons or entities who fail to
the grid, provided they are WESM Members, register with the WESM within ninety (90)
either as a Direct of Indirect, pursuant to days from the effectivity of this Circular
WESM Rules Section 2.2.4.2, which states shall be disconnected from the grid. This
that “no person or entity shall be allowed to condition shall initially apply to the Luzon
inject or withdraw electricity from the grid grid where there is WESM operation.
unless that person or entity is a registered
member of the WESM”; 2.2 Other grounds for disconnection. The
DOE shall provide other grounds for
WHEREAS, it therefore necessarily follows disconnection of persons or entities in
that DUs who are not WESM members do not the guidelines as it may deem proper
have the right to withdraw electricity from the pursuant to the overall intent of the
grid and should therefore be disconnected EPIRA.
from the grid;
Pursuant to Section 4.1. below, the DOE
WHEREAS, the Open Access and Transmission shall formulate the necessary guidelines for
Services (OATS) Rules provides that the the disconnection of persons or entities who
Transmission Provider shall not be held liable fail to comply with this Circular, taking into
for failure to deliver the services described in consideration existing laws and procedures.
Modules B C, and D of the OATS Rules in case
the Transmission Customer fails to comply Section 3. Transition Period. Section 1 and
with its obligations under the OATS Rules, the 2 above are hereby subjected to a transition
Grid Code, and the WESM Rules; period of ninety (90) days from the effectivity
of this Circular. Within the 90-day period, the
NOW THEREFORE, premises considered the following shall take place:
DOE hereby declares the following:
3.1 All DUs, i.e. privately-owned utilities
Section 1. Termination of the DWS and electric cooperatives, generation
Arrangement. In view of the inability of NPC companies, and other entities connected
and PSALM to economically and effectively to the grid, are hereby directed to register
perform their duties as DWS considering with the WESM. Failure to comply with
the privatization level to-date, the DWS this requirement shall result in the
arrangement provided in DOE Circular disconnection of the concerned entity
No. 2006-06-009 is hereby terminated. pursuant to Section 2 of this Circular.
Accordingly, NPC and PSALM are thereby
relieved from their designation as the DWS. 3.2 Any DU, i.e. privately-owned utilities
All other rules, resolutions, or circulars issued and electric cooperatives, which has
in relation to the DWS are hereby declared arrearages with NPC and PSALM at the
repealed. time of the effectivity of this Circular,
shall be allowed to register in the
In accordance with Section 2 of DOE Circular WESM; Provided, that such DU shall
No. 2006-06-009, the termination of the DWS settle its arrearages or enter into a
arrangement shall apply to the grid where restructuring agreement with NPC and
WESM is operational. PSALM within ninety (90) days from the
effectivity of this Circular. The failure of
Section 2. Disconnection Policy. any electric power industry participant
to comply with this requirement within

the prescribed period shall constitute a 4.4 PEMC shall continuously monitor and
violation of this Circular and shall result submit regular reports to the DOE on the
in the disconnection of the participant status of the registration in the WESM.
from the grid. For this purpose, the
subsequent settlement or restructuring 4.5 PSALM and NPC shall provide the DOE all
of the arrearages with NPC and PSALM information on DWS arrangements and
is hereby considered a condition for the assist the DOE in the implementation of
reconnection of the participant. the termination of the DWS arrangement.
PSALM and NPC are likewise required
3.3 In the case of private entities, i.e. to submit to the DOE a regular monthly
generation companies, distribution report on the restructuring of the
utilities, transmission service providers outstanding obligations of its customers.
and other service providers, settlement
arrangements of the outstanding 4.6 NEA is directed to provide assistance to all
obligations, if any, shall be governed by electric cooperatives for their registration
their existing bilateral contracts. in the WESM, including compliance with
the requirements to settle or restructure
Section 4: Responsibilities of Entities: their outstanding obligations with NPC
and PSALM. It shall, together with the
4.1 Pursuant to the mandate of the DOE DOE, undertake an information and
under Section 37(p) of the EPIRA to education campaign for the termination
formulate rules and regulations as of the DWS arrangement and the
may be necessary to implement the implementation of the disconnection
objectives of the EPIRA and the WESM policy.
Rules, the DOE, in coordination with
NGCP, TRANSCO, NPC, PSALM, NEA, and 4.7 All electric power industry participants
PEMC shall provide the guidelines within are directed to register in the WESM
ninety (90) days from the effectivity of pursuant to WESM Rules 2.2.4.2.
this Circular for the disconnection of
persons or entities who fail to comply Section 5. Creation of Implementation
with this Circular. Review Committee (IRC). An IRC composed
of representatives from DOE, PEMC, PSALM,
4.2 In addition, the DOE shall, together with NPC, TRANSCO, NEA, and NGCP is hereby
PEMC and NEA, provide the necessary created. The DOE shall chair the IRC.
support, including liaison with financial
institutions, to the DUs in need in 5.1 The IRC shall be responsible for ensuring
complying with this Circular and the the smooth termination of the DWS
requirements for registration with the arrangement and the implementation of
WESM. the disconnection policy.

4.3 Pursuant to the EPIRA and the OATS 5.2 The IRC shall formulate the implementing
Rules, NGCP is hereby given the authority rules and regulations of this Circular.
to disconnect from the grid persons or
entities who fail to comply with their Section 6. Separability Clause. If for any
obligations under the OATS Rules, the Grid reason, any section or provision of this
Code, the WESM Rules, and this Circular Circular is declared unconstitutional or
in accordance with the guidelines to be invalid, the other parts or provisions hereof
issued by the DOE in Section 4.1 of this which are not affected thereby shall continue
Circular. to be in full force and effect.

Section 7. Effectivity and Publication. This This Circular shall remain in effect until
Circular shall be effective fifteen (15) days otherwise revoked.
from its publication in a newspaper of general
circulation. PEMC is hereby directed to Taguig City, Philippines May 6, 2010
publish this Circular in the market information
website.
DIRECTING THE PREPARATIONS FOR THE TRADING OF ANCILLARY SERVICES IN THE PHILIPPINE
WHOLESALE ELECTRICITY SPOT MARKET (“WESM”)

WHEREAS, Section 37 of EPIRA Republic WHEREAS, the Philippine Electricity

Act No. 9136, otherwise known as the Market Corporation was constituted as the
“Electric Power Industry Reform Act of 2001” autonomous group market operator of the
or “EPIRA”, provides the mandate of the WESM;
Department of Energy (“DOE”) to “ensure
the reliability, quality and security of supply WHEREAS, upon declaration by the DOE
of electric power, encourage private sector through Department Circular No. DC-2006-
investments in the electricity sector and 06-0008, the WESM commenced commercial
promote development of indigenous and operations in Luzon on 26 June 2006;
renewable energy sources and develop
policies and procedures and, as appropriate, WHEREAS, the WESM Rules in Section 10.3
promote a system of energy development provided that, initially, only energy shall be
incentives to enable and encourage electric traded upon commencement of the WESM;
power industry participants to provide
adequate capacity to meet demand including, WHEREAS, for ancillary services, the WESM
among others, reserve requirements; Rules Section 10.3.2.3 provides that when
applicable and reasonably feasible, the
WHEREAS, the DOE is also mandated Market Operator of the WESM shall establish
under Section 30 of the EPIRA to establish a spot market mechanism for competitive
the Wholesale Electricity Spot Market spot market trading in the purchase of
(“WESM”) that would facilitate a transparent, certain reserve categories and that the DOE
competitive, and reliable market for shall declare the commencement of the spot
electricity; market for ancilliary services.
WHEREAS, the DOE, jointly with the electric WHEREAS, the WESM Price Determination
power industry participants, is tasked to Methodology as approved by the Energy
formulate the detailed rules for the WESM Regulatory Commission in its Decision dated
and, pursuant to this, the DOE upon the 20 June 2006 in ERC Case No. 2006-007 RC
joint endorsement of electric power industry embodies the principle of the co-optimization
participants promulgated the Wholesale of reserve and energy in the pricing and
Electricity Spot Market Rules (“WESM Rules”) scheduling processes of the WESM;
on 28 June 2002 through Department Circular
No. DC-2002-06-003; WHEREAS, there is a need to establish the
conditions and the roles and responsibilities
of concerned agencies and entities in the for reserves, provided that the
preparations for the establishment and methodology shall be consistent with
commencement of the spot market for the relevant provisions of the WESM
ancillary services; Rules and the duly approved WESM Price
Determination Methodology;
NOW, premises considered, the DOE hereby
declares as follows - (b) Ensuring that the WESM Market
Management System and other market
SECTION 1. Scope and Application. This infrastructure, both hardware, software
Circular shall apply to the agencies and and necessary interfaces, are in place to
entities named in this Circular and to all support the operations of the trading of
electric power industry participants. reserves in the WESM;
SECTION 2. Spot Market Mechanism for (c) Ensuring readiness of all WESM members
Ancilliary Services. The spot market for and trading participants as well as
ancillary services shall be made an integral WESM service providers by conducting
part of the WESM and shall cover the reserve training, stakeholder consultations
categories as prescribed in the WESM Rules and other information dissemination
and as may be proposed by the Market activities to fully inform the WESM
Operator in consultation with the System members and participants of the relevant
Operator and approved by the Philippine methodologies and processes for the
Electricity Market Board in accordance with trading of reserve;
the WESM Rules. For this purpose, the
principle of the co-optimization of reserve (d) Review the existing WESM Rules, manuals
and energy as provided for in the WESM Rules and its internal business processes
and the approved WESM Price Determination relevant to the trading of reserve and
Methodology shall always be followed. provision of ancillary services and, if
warranted, propose and secure approval
SECTION 3. Responsibilities. Pursuant to for changes to said rules, manuals, and
their respective mandates and functions business processes; and
under the EPIRA and its Implementing Rules
and Regulations, the WESM Rules and other (e) Comply with all directives from the DOE
relevant laws and issuances, the following pertaining to the establishment of the
agencies and entities are enjoined to extend reserve market.
their full cooperation toward the preparations
for the establishment and commencement of SECTION 3.2. National Grid
the trading of reserves in the WESM (“reserve Corporation of the Philippines. The
market” for brevity). NGCP shall ensure that its performance
of its functions and obligations pursuant
SECTION 3.1. Philippine Electricity to its mandate on the provision of
Market Corporation (“PEMC”). Pursuant ancillary services are in compliance with
to its mandate as the autonomous group the EPIRA and its Implementing Rules
market operator of the WESM, the PEMC and Regulations, the WESM Rules, the
shall complete its preparations for the Philippine Grid Code, the Open Access
establishment of the reserve market. Its Transmission Service Rules (“OATS
preparatory activities shall include, but not Rules”), and other relevant rules and
be limited to: regulatory issuances. Toward this end, it
shall closely coordinate with PEMC and
(a) Securing regulatory approval of the the DOE to ensure that all pre-requisites
pricing and cost recovery methodology and conditions for the establishment of
the reserve market are complied with commercial operations of the reserve market
and completed in a timely manner. upon its determination that the conditions
and criteria it has set have been substantially
SECTION 3.3. National Electrification complied with.
Administration. The NEA shall render
appropriate assistance to electric SECTION 5. Reportorial Requirements. For
cooperatives (“ECs”) in ensuring their purposes of monitoring compliance with
readiness for the commencement of the directives under this Circular, the PEMC,
the WESM reserve market. It shall NGCP, NEA, and other relevant agencies shall
submit regular reports to the DOE on be required to submit reports on the progress
the status of the activities undertaken and status of their preparations and readiness
together with the ECs in performing their to the DOE from time to time.
responsibilities under this Circular.
SECTION 6. Supervision by the DOE. The DOE
SECTION 3.4. WESM Members and shall continue to oversee the development
Electric Power Industry Participants. All of the WESM which includes, among other
WESM Members and Trading Participants, things, the trading of reserves. Toward
as well as non-registered WESM this end, it shall undertake such actions as
electric power industry participants provided in the EPIRA, its Implementing
are hereby directed to undertake Rules and Regulations, and the WESM Rules
their own preparations to ensure their in connection with the establishment of the
readiness for the commencement of WESM.
the WESM reserve market. All qualified
participants intending to participate in SECTION 7. No amendment or repeal of
the WESM reserve market as ancillary existing laws. Nothing in this Circular shall be
services providers shall obtain the construed as to amend, supplant, or repeal
necessary regulatory approvals as such any of the mechanisms or institutions already
and shall ensure compliance with the existing or responsibilities already allocated
requirements set forth in the WESM and provided for under any existing law, rule
Rules and other requirements as may or contract.
be set by the PEMC and NGCP for the
registration and accreditation of ancillary SECTION 8. Effectivity and Publication.
services providers in the WESM. This Circular shall be effective immediately
upon its publication in two (2) newspapers of
SECTION 4. Criteria and Conditions for general circulation. The PEMC is also hereby
Declaration of Commencement of Spot directed to publish this Circular in the WESM
Market for Ancillary Services. Pursuant Market Information Website.
to its mandate, the DOE shall determine
the feasibility and reasonability of the This Circular shall remain in effect until
commencement of the commercial otherwise revoked.
operations of the reserve market in the
WESM. Towards this end, it shall establish Taguig City, Metro Manila, Philippines, June
appropriate criteria for assessment of the 23, 2010.
readiness of all electric power industry
participants to participate in and of the NGCP JOSE C. IBAZETA
and PEMC to operate the reserve market. Acting Secretary
The DOE shall declare commencement of the

PRESCRIBING THE QUALIFICATION CRITERIA FOR THE QUALIFIED THIRD PARTY PURSUANT TO
SECTION 59 OF “THE ELECTRIC POWER INDUSTRY REFORM ACT OF 2001,” AND ITS IMPLEMENTING

WHEREAS, it is the policy of the State to PREMISES, the DOE hereby promulgates
ensure and accelerate the total electrification the following guidelines setting out the
of the country; qualification criteria for the determination of
QTPs that may be authorized to participate
WHEREAS, Section 59 of Republic Act No. in missionary electrification program of the
9136, otherwise known as the “Electric Power Government as set out in the EPIRA and its
Industry Reform Act of 2001” or “EPIRA,” IRRs.
has opened to other Qualified Third Parties
(QTPs) the provision of electric service in SECTION 1. Definition of Terms. –
remote and unviable areas that the franchised
Distribution Utility is unable to service; Unless the context otherwise indicates, the
terms used in this Circular shall have the
WHEREAS, pursuant to Rule 13 of the following meanings:
Implementing Rules and Regulations (IRR)
of “EPIRA” or “EPIRA-IRR,” the Department (a) “Distribution Utility” refers to any
of Energy (DOE) is tasked to issue specific electric cooperative, private corporation,
guidelines on how to encourage the inflow government-owned utility or existing
of private capital and the manner whereby local government unit, which has
other parties can participate in the missionary an exclusive franchise to operate a
electrification projects set forth in the distribution system in accordance with
Missionary Electrification Development Plan its franchise and the EPIRA;
(MEDP);
(b) “Missionary Electrification” refers to the
WHEREAS, pursuant to Rule 14 of the provision of basic electricity service in
EPIRA-IRR, the DOE shall set the criteria for unviable areas with the ultimate aim of
determining QTPs that may participate in bringing the operations in these areas to
providing electricity to remote and unviable viability levels;
areas which may include financial, technical,
environmental, and other indices of (c) “Missionary Electrification Development
performance; Plan” or “MEDP” refers to the five-(5)
year plan of the DOE, updated annually,
WHEREAS, the DOE deems it appropriate to to implement missionary electrification
broaden its approach to rural and missionary program of the Government and serves
electrification through the creation of a as basis for the determination by the ERC
market-based environment that is conducive of the Universal Charge for Missionary
to private sector investment and participation Electrification (UC-ME);
and encourages technology transfer, and
research and development; (d) “Person” refers to a natural or juridical
person, as the case may be;
NOW, THEREFORE, FOR AND IN
CONSIDERATION OF THE FOREGOING
(e) “Qualification Criteria” refers to the set Bureau (EPIMB) for accreditation as a QTP.
of financial, technical, and other indices The DOE shall evaluate an application
of performance prescribed by the DOE based on the Qualification Criteria set
as basis for determining QTP/s to serve forth in this Circular.
Unviable or Waived Area/s;
(b) DOE may impose upon any Person
(f) “Qualified Third Party” or “QTP” refers to limitations of its accreditation as a QTP,
the alternative electric service provider including limitations as to the size of an
authorized to serve remote and unviable area a QTP is allowed to apply to serve
areas pursuant to Section 59 of the EPIRA (where size will be measured by number
and Rule 14 of the EPIRA-IRR; of potential customers and/or probable
peak demand).
(g) “Unviable Area” refers to a geographical
area within the franchise area of SEC. 4. Eligibility Criteria for Qualified Third
Distribution Utility where immediate Party. –
extension of distribution line is not
feasible; and (a) General

(h) “Waived Area” refers to an area within (i) To be accredited as a QTP, a Person
the franchise area of a Distribution Utility must demonstrate that it is financially
declared as unviable and cannot be and technically capable, and of good
served for any reason by the Distribution standing in the business community.
Utilities.
(ii) Any Person registered with the
SEC. 2. Declaration of Policies. – Philippine Securities and Exchange
Commission which meets the criteria
It is hereby declared the policies of the DOE set forth in this Circular may be
that: accredited as a QTP.

(a) Any Person who meets the Qualification (iii) Organizations eligible for
Criteria set forth in this Circular shall be accreditation may include, without
accredited as a QTP. limitation, private firms, Local
Government Units, Cooperatives,
(b) All QTPs shall comply with the technical, Non-Government Organizations,
financial, reporting, environmental, and Generation Companies or its
other performance standards, which the subsidiaries, or subsidiaries of
DOE and/or ERC may prescribe relative Distribution Utilities.
to the provision of electricity services to
remote and Unviable Areas. (b) Limitation on Accreditation

(c) No Person shall be allowed to serve The DOE may restrict the type or size
Waived Areas unless it is first accredited of system that a QTP will be allowed to
as a QTP by the DOE. construct and operate. Such restrictions
may include, without limitation, (i)
SEC. 3. Guiding Principles in Accrediting QTPs. restrictions on the size of system, (ii)
– restrictions on the location of the system;
and (iii) restrictions on the generating
(a) Any Person who intends to serve a Waived technology to be used, where the size of
Area may apply with the DOE through the system is restricted, such restriction
the Electric Power Industry Management may be expressed in terms of generation
capacity, technology, and/or number of (4) Details of the procedures that the
connections to be served. applicant proposes to put in place
for the billing to and collection
(c) Technical Criteria of payment from customers and
maintain accounting records of
(i) To be accredited as a QTP, an its commercial operations. An
interested Person must demonstrate undertaking that the applicant
that it has the technical skills will allow DOE and/or ERC to
and capacity to operate a power open its accounting records
generation facility and/or an electric relating to its operations, when
power distribution system for public necessary.
supply.
(5) A statement certifying that the
(ii) In order to demonstrate the required applicant intends to design,
skills and capacity, applicants must construct, operate and maintain
provide: its generation and distribution
systems in full compliance with
(1) Full details of the technical the relevant requirements
skills and experience of the key prescribed under the applicable
management team responsible laws including EPIRA and its
for the operation of the system. attendant rules and regulations.
These details should include
relevant technical and business In addition to the above mandatory
management qualifications information requirements an applicant may
as well as full descriptions of provide additional supporting documents,
experience relevant to the such as evidence indicating experience in
technical and commercial related areas and operation of other utility
operation of electric power or infrastructure businesses. The DOE may,
generation and supply systems. at its discretion, take such information into
account when deciding whether or not to
(2) Details of the proposed approve the application, or whether or not
arrangements for the acquisition, to impose a limitation on accreditation in
training and contracting of the accordance with Section 4 (b) of this Circular.
necessary expertise that the
applicant does not possess at (d) Financial Criteria
the time of application.
(i) To be accredited as a QTP, an
(3) Details of how the applicant interested Person must demonstrate
proposes to design, construct, that it has the financial capacity to
operate, and maintain the finance a power generation facility
generation and associated and electric power distribution
distribution system to be used system of the size likely to be required
in its operations, including its for the operations. The DOE may
proposed plans for dealing with impose a limitation, in accordance
major operating contingencies with Section 4 (b) of this Circular, on
such as a failure of its generating the size of system that the applicant
plant or a major fault on its may install and operate, consistent
distribution system. with its financial capacity.


(ii) Proof of financial capacity may are in good financial standing
include, among others: and that they have adequate
resources.
(1) Evidence of the total net assets
of the organization; (4) Other clear indications of ability
to access the required finance.
(2) A letter of credit or letter of
intent to invest from a bank or (e) Good Standing
another organization provided
that the DOE is satisfied that Any interested Person seeking
the other party has adequate accreditation may be accredited if they
financial capacity and indeed has can demonstrate to DOE the capacity
the intent to invest or provide to finance a system of a size likely to be
credit; authorized for the provision of electric
service to Waived Area/s and was able to
(3) The most recent annual report submit proof that it is in good standing
or financial accounts of the with the business community in which it
applicant duly certified as operates.
correct by a registered auditor
or accountant; and Factors which could lead DOE to
determine that an organization is not in
(4) Proof of adequate insurance good standing may include:
coverage and compliance with
all Philippine labor laws. (i) The involvement in the proposed
key management team or in a
(iii) Any Person, which cannot meet the management position in the
financial criteria outlined above, organization of anyone who:
may be accredited if they can
demonstrate to DOE the capacity to (1) Is an undischarged bankrupt;
finance a system of the proposed
size. (2) Has been convicted of any crime
involving fraud or dishonesty
Factors, which DOE would consider, committed in the last ten (10)
would include: years; and

(1) History of operating profitably a (3) Has been successfully sued for
generation, distribution or other fraud, breach of director’s duties
utility business of comparable or any similar action.
size.
(ii) Being currently suspended or
(2) History of developing blacklisted by NPC, or by any other
infrastructure projects of similar government agency, whether in
size. its capacity as an individual or
partnership or corporation or as
(3) A letter of testimonial from a a member of a joint venture or
reputable financial institution consortium.
attesting that the Applicant and/
or members of the consortium (iii) Has a negative slippage of more
are banking with them, that they than fifteen (15) percent in any

of its ongoing contracts with the are hereby amended or repealed accordingly.
Government, NPC or any electric
utility or generation companies, SEC. 6. Saving Clause. –
or record of unsatisfactory past
performance particularly non (a) If for any reason, any provision of this
compliance with contract terms, Circular is declared unconstitutional or
plans and specifications, defective invalid, the other parts or provisions
workmanship, abandonment of work hereof which are not affected thereby
and similar deficiencies. shall continue to be in full force and
effect.
(f) Local Enterprises and Renewable
Technologies. (b) The implementation of this Circular shall
not exempt the parties from complying
Consistent with Government policies with applicable laws and government
in relation to the development of local rules and regulations.
enterprises and renewable technologies,
DOE will encourage local enterprises and SEC. 7. Effectivity. –
organizations with expertise in renewable
technologies to operate as QTPs. Such This Circular shall take effect within fifteen
local enterprises and organizations (15) days upon publication in newspaper of
may be given limited accreditation in general circulation.
accordance with Section 4 (b) of this
Circular, consistent with the extent
to which they demonstrate technical, VICENTE S. PÉREZ, JR.
financial capacity and good standing Secretary
criteria.
Fort Bonifacio, Taguig
SEC. 5. Repealing Clause. – Metro Manila, Philippines
8 June 2004
All pertinent issuances, circulars and
memoranda inconsistent with this Circular

DIRECTING ALL DISTRIBUTION UTILITIES TO FILE PETITION WITH THE ENERGY REGULATORY
COMMISSION FOR APPROVAL OF REVISED LIFELINE RATE STRUCTURE
WHEREAS, Section 73 of Republic Act No. WHEREAS, Section 4 (j), Rule 7 and Section
9136, otherwise known as the Electric Power 3 (b), Rule 20 of the Implementing Rules and
Industry Reform Act of 2001 (“EPIRA”), Regulations of EPIRA (“EPIRA-IRR”) provides
provides for the setting by the Energy for the obligation of Distribution Utilities
Regulatory Commission (“ERC”) of a socialized to file the necessary petition with the ERC
pricing mechanism to be called the lifeline recommending the level of consumption
rate for the marginalized end-users; (kWh per month) to be qualified for the
lifeline rate to be applied to its marginalized
end-users;

WHEREAS, with the implementation on 1 structure in consideration of the following
July 2005 of the recently-enacted Republic principles:
Act No. 9337 removing the exemption of
electricity sales and services, as well as sales (a) To the fullest extent possible, current
of petroleum products, from value-added tax lifeline end-users should continue to enjoy
(“VAT”), electricity rates are also expected to the full benefits of the subsidies under
increase; the levels of consumption approved by
the ERC for each Distribution Utility prior
WHEREAS, the anticipated increase in to the implementation of changes in tax
electricity rates resulting from the imposition laws.
of VAT on electricity and petroleum sales and
services, together with the continued and (b) When necessary, Distribution Utilities
excessive increases in the world oil prices, shall modify the levels of consumption
has prompted Her Excellency President in their revised lifeline rate structure to
Gloria Macapagal-Arroyo to mandate all allow more end-users to qualify therein.
government agencies to explore and adopt
the necessary measures to mitigate the (c) To the greatest extent possible,
impact of the imposition of the VAT on all Distribution Utilities shall strive to adopt
electricity end-users, particularly the poorest a revised lifeline rate structure that would
of the poor; factor in the end-user’s consumption
level and ability to bear additional
WHEREAS, Section 2 (f) of EPIRA declares burden of increasing electricity rates with
it a policy of the State to protect the public the end in view of protecting residential
interest as it is affected by the rates and end-users, particularly the poorest of the
services of electric utilities and other poor.
providers of electric power;
SEC. 2. In reviewing and revising their
WHEREAS, Section 1 (r), Rule 3 of the respective lifeline rate structures, Distribution
EPIRA-IRR provides that it is the function of Utilities may consult with and seek the
the Department of Energy (“Department”) assistance of the Department.
to exercise such other powers as may be
necessary or incidental to attain the objectives SEC. 3. All Distribution Utilities shall file
of the Act; their respective petitions for revised lifeline
levels of consumption and corresponding rate
NOW, THEREFORE, premises considered, structure with the ERC at the soonest possible
the Department, pursuant to its mandate, time in view of the exigency of the situation
directs all Distribution Utilities, as defined in and the need to adopt these mitigating
the EPIRA, to file the necessary petition with measures at the soonest possible time.
the ERC for the adoption of revised lifeline
levels of consumption and corresponding SEC. 4. This Circular shall take effect
rate structures to mitigate the impact of immediately upon issuance thereof, with
increases in electricity rates resulting from copies sent to each Distribution Utility.
the imposition of the VAT, rising oil prices and
other costs of production. Fort Bonifacio, Taguig, Metro Manila, 22 June
2005.
SECTION 1. All Distribution Utilities, upon the
effectivity of this Circular, shall immediately RAPHAEL P. M. LOTILLA
commence the process of reviewing and Secretary
revising their ERC-approved lifeline rate

Chapter 2
Rural Power Projects
ENERGY REGULATION NO. 1-94

RULES AND REGULATIONS IMPLEMENTING SECTION 5 (i) OF REPUBLIC ACT NO. 7638, OTHERWISE
KNOWN AS THE “DEPARTMENT OF ENERGY ACT OF 1992”
SECTION 1. Title. – Pursuant to Section 5 (i) affected with public interest; and
of Republic Act No. 7638, otherwise known
as the “Department of Energy Act of 1992,” c) To promote harmony and cooperation
which provides that the Department shall among host LGUs, the community and
“devise ways and means of giving direct people affected, the energy resource
benefits to the province, city, or municipality, developers or power producers, and
especially the community and people the appropriate agencies of the national
affected, and equitable preferential benefit government whereby the community
to the region that hosts the energy resource and people affected and the host LGUs
and/or the energy-generating facility: are provided with the benefits under
Provided, however, That the other provinces, a coordinated and consultative or
cities, municipalities, or regions shall not participative process while the power
be deprived of their energy requirements,” producers or energy resources developers
the Department of Energy hereby adopts are accorded community support and
and promulgates the following rules and legal protection by the host LGUs.
regulations.
SECTION 3. Scope of Application. – These
SECTION 2. Policy Objectives. – rules and regulations shall apply to energy
resource development projects and energy-
a) To recognize and provide recompense for generating facilities located in all barangays,
the contribution made by the pertinent municipalities, cities, and provinces, except
barangay, municipality or city, province or those falling within Metropolitan Manila,
region in hosting within their respective Metropolitan Cebu (Cebu City, Lapu-Lapu City
territorial jurisdiction the energy resource and Mandaue City), Metropolitan Davao and
and/or energy-generating facility through other highly urbanized cities as defined under
which the rest of the country is energized; Section 452 of the Local Government Code.

b) To lessen conflict of rights among LGUs, The benefits under these rules shall be
the community and people affected, the required prospectively from all energy
energy resource developers or power resource developers and power producers
producers, and the appropriate agencies including those existing at the time of the
of the national government, recognizing effectivity of these rules and regulations.
that the relationship among them is
SECTION 4. Definition of Terms. – Unless the points to the transmission system to
context otherwise indicates, the terms used consumers or end users.
in these rules and regulations shall have its
following respective meanings: (j) “DOE” refers to the Department of
Energy created pursuant to Republic Act
(a) “Barangay” shall be as defined in the No. 7638.
Local Government Code of 1991.
(k) “DOH” refers to the Department of Health
(b) “Benefits” refers to all forms of assistance created pursuant to Executive Order No.
or services that can be extended to the 119, series of 1987, as amended.
host LGU or host region.
(l) “DOLE” refers to the Department of
(c) “Beneficiary” refers to the host LGU or Labor and Employment defined under
the host region entitled to the benefits. Book IV, Title VII of Executive Order No.
292, series of 1987, as amended.
(d) “City” shall be as defined in the Local
Government Code of 1991. (m)
“DPWH” refers to the Department
of Public Works and Highways as
(e) “Cogeneration Facility” refers to a reorganized by Executive Order No. 124,
facility which produces electricity or series of 1987, as amended.
mechanical energy and forms of useful
thermal energy (such as heat or steam) (n) “Electricity Sales” refers to the sales
for industrial, commercial, heating, or proceeds derived by the power producer
cooling purposes through the sequential from the actual generation of the energy-
use of energy and is accredited as a generating facility net of station own use,
cogeneration facility by the DOE. and losses.
(f) “Community and People Affected” (o) “Electric Utility System” refers to the
refers to bonafide residents of a host distribution system of an electric
LGU and who were relocated as a result cooperative, government-owned or
of the construction, and/or operation privately-owned electric utility operating
of an energy generating facility or the within one or several electric utility
development of an energy resource power grids.
development project, to official
resettlement sites. (p) “Electric Utility” refers to the electric
cooperative, government-owned or
(g) “DENR” refers to the Department of private-owned electric utility within one
Environment and Natural Resources as or several electric utility power grids.
reorganized by Executive Order No. 192,
series of 1987, as amended. (q) “Electrification” refers to the provision
of dependable and adequate electric
(h) “DILG” refers to the Department of services to a franchised area.
Interior and Local Government created
pursuant to Republic Act No. 6975, as (r) “Energy-efficient technologies” refers
amended. to technologies which meet the ratio
of useful energy output to energy input
(i) “Distribution System” refers to the prescribed by the DOE under its circulars
electric system of an electric utility which and/or its implementing rules and
delivers electricity from transformation regulations.

(s) “Energy-generating Facilities” refers of adequate flow and heat essential
exclusively to any of the following types for hydropower generation.
of power plants constructed/operated to
supply electricity: 4. “Hydrothermal or Hydro resources”
refers to natural streams, rivers
1. “Coal-fired Power Plant” refers to an or lakes that can be harnessed
electricity-generating plant which to provide the combination of
uses coal (whether locally produced adequate flow and heat essential for
or imported) as fuel. hydropower generation.
2. “Geothermal Power Plant” refers to 5. “Natural Gas” refers to gas obtained

an electricity-generating plant which from the boreholes and wells and
utilizes geothermal steam and/or consisting primarily of hydrocarbons.
brine.
“Energy resource” may be
3. “Hydroelectric Power Plant” refers to classified as either conventional
an electricity-generating plant which or nonconventional, imported or
utilizes the kinetic energy of falling or indigenous.
running water.
1) “Conventional energy resources”
4. “Oil-fired Power Plant” refers to an refer to energy resources such
electricity-generating plant which as coal, petroleum, hydro, and
utilizes liquid or gaseous fuel such as natural gas.
industrial fuel oil or diesel. It shall
not, however, include any electricity- 2) “Nonconventional energy
generating plant fired by natural gas resources” refer to energy
or liquefied petroleum gas. resources which are renewable
and indigenous, the conversion
(t) “Energy resource” refers only to any of and utilization technology
the following: of which is characterized as
decentralized and modular.
1. “Biomass” refers to any organic These shall include biomass,
matter used for energy, broadly mini-hydro, ocean waves,
classified into plant matters and solar, wind, and similar energy
animal residues. Plant matters are resources.
further categorized into (a) naturally-
occurring resources such as forest 3) “Imported energy resources”
and agricultural residues, and (b) refer to energy resources which
cultivated resources such as woodlot are principally obtained from
or tree farms. outside the Philippines.
2. “Coal” refers to a black or brownish- 4) “Indigenous energy resources”

black combustible rock formed by the refer to energy resources which
accumulation, decomposition, and originate or occur naturally in
compaction of plant materials under the Philippines.
a long acting geological process.
(u) “Energy resource developer” refers to
3. “Geothermal Resources” refers to all any person (whether natural or juridical)
geothermal fluids existing naturally or that is engaged or intends to engage in
formed by the artificial introduction the development of energy resources.
(v) “Franchise” refers to a privilege extended (ae) “Mini-hydroelectric power development”
to a person (whether natural or juridical) or “Mini-hydro” refers to the construction
to operate, maintain and/or distribute and installation of a hydroelectric-
power within a specific geographical generating plant and its auxiliary facilities
area. such as transmission, substation and
machine shop with an installed capacity
(w) “Franchised area” refers to a geographical of not less than 101 kilowatts nor more
area franchised to a public service entity, than 10,000 kilowatts.
such as electric cooperative, or local
government-owned or privately owned, (af) “Municipality” shall be defined as in the
electric utility. Local Government Code of 1991.
(x) “Franchise holder” refers to a person (ag) “NEA” refers to the National Electrification
(whether natural or juridical) holding a Administration created pursuant to
franchise. Presidential Decree No. 269, as amended,
tasked primarily to administer the rural
(y) “Host LGU” refers to a local government electrification program.
unit (barangay, municipality, city or
province) where the energy resource (ah) “NPC” refers to the National Power
and/or energy-generating facility is Corporation created pursuant to Republic
located as determined under Section 5 Act No. 6935, as amended.
hereof.
(ai) “On-going energy-generating projects”
(z) “Host region” refers to the region where refers to energy-generating facilities
the energy resource and/or energy- which are existing, and to those projects
generating facility is located under under which energy-generating facilities
Section 5 hereof. are under construction, at the time of the
effectivity of these rules and regulations.
(aa) “Load dispatch” refers to the system
of directing electricity supplied from (aj) “Power producer” refers to any person
energy-generating facilities to various (natural or juridical) who is engaged in
electricity consumers. the construction and/or operation of an
energy-generating facility.
(ab) “Local Government Code” refers to
Republic Act No. 7160. (ak) “Province” shall be as defined in the Local
Government Code of 1991.
(ac) “Micro-hydroelectric power
development” or “Micro-hydro” refers (al) “Public Service Cooperative” refers to
to the construction and installation of a an electric cooperative that is organized
hydroelectric-generating plant and its as a cooperative under the provisions of
auxiliary facilities such as transmission, Republic Act No. 6938.
substation and machine shop with
an installed capacity of less than 101 (am)
“Reservoir” refers only to any of the
kilowatts. following:
(ad)
“Mineable coal reserve” refers to a 1. “Geothermal reservoir” refers to a
well-defined mass of coal from which subsurface geological environment
extraction is economically feasible. where the geothermal fluids
accumulate and circulate.

2. “Hydro reservoir” refers to either (c) Host LGU or host region shall be
a natural lake or an artificial lake understood as follows:
created by the impounding of
streamflow, runoff and subsurface (1) With respect to energy-generating
water behind a dam. facilities, in the case of power barges,
the host LGU or host region is that
3. “Petroleum/Natural Gas reservoir” where the power barge is moored;
refers to a subsurface-geological in all other cases, the host LGU or
environment where crude oil and/ host region is that where the energy-
or natural gas accumulate under generating facility is physically
adequate trap conditions. located. Energy-generating facilities
shall not include transmission lines
(an) “Rural Electric Cooperative” refers to a and substations.
corporation organized under Republic
Act 6038, or Presidential Decree No. (2) With respect to energy resources:
269, as amended by Presidential Decree
No. 1645, or a cooperative supplying or (a) Coal. The host LGU or host region
empowered to supply electric service is that where the producing
which has heretofore been organized positive coal reserve is located,
under the Philippine Non-Agricultural as delineated by geophysical,
Act, whether or not converted under geological and exploration
Presidential Decree No. 269. surveys.

(ao) “Small Scale Mining (SSCM) Permittee” (b) Geothermal. The host LGU
refers to a holder of a DOE permit to or host region is that where
exploit coal resources covering an area the producing geothermal
within a coal operating contract or a free reservoir is located as delineated
area outside of a coal operating contract. by detailed geochemical,
An SSCM coal permit covers a compact geophysical, and exploration
and contiguous area not exceeding five surveys.
(5) hectares within a geological coal
reserve not exceeding 50,000 metric (c) Hydro. The host LGU or host
tons. region where the hydro reservoir
is located, as delineated by
(ap) “Watershed” refers to a land area drained detailed topographic, geological,
by a stream or fixed body of water and its and geotechnical investigations;
tributaries having a common outlet for reservoir and dam height
surface runoff. optimization studies; and as
delineated by a detailed ground
SECTION 5. Beneficiaries. – survey.

(a) Direct benefits shall be provided to the (d) Petroleum/Natural Gas. The
host LGU, especially the community host LGU or host region is that
and people affected while equitable where the producing petroleum/
preferential benefits shall be provided to natural gas reservoir is located,
the host region. as delineated by detailed
geochemical, geophysical
(b) Community and People affected shall be exploration surveys.
understood as defined under Section 4 (f)
of these rules and regulations.
The developed energy resource field is host region. In implementing said
delineated on the ground by the production order of radiating benefit, priority
facilities and other physical installations in electrification shall be given
related to the project. to the more populous barangay
that is nearer in distance to the
(e) Unless otherwise provided in these rules electricity-generating facility. Any
and regulations, the DOE shall, after due dispute regarding the sequence of
consultation with the affected parties, electrification of barangays shall be
determine the proportion of benefits settled through a final determination
to be received by one host LGU vis-à-vis by the DOE after due consultation
another host LGU in the event the energy- with the affected parties. In settling
generating facility or the energy resource such disputes, the DOE shall give due
development overlaps more than one weight to the relative population
host LGU. In rationalizing such sharing density of, and proximity of the
of benefits, the DOE shall consider the energy-generating facility to, the
area occupied and the amount of energy contending host LGUs.
generated or produced by the energy-
generating facility or energy resource (2) The electrification of the host
project in one host LGU vis-à-vis the other municipality or city may be
host LGUs, and such other equitable basis accomplished through a public
for apportionment. service cooperative or PSC. In this
connection, the NEA shall facilitate
SECTION 6. Nature of Benefits. – Consistent the granting of the necessary
with Section 5 hereof, the community and franchise to a PSC but upon
people affected, the pertinent host LGU satisfactory showing that such PSC
indicated below or the host region shall be is economically viable, and will be
entitled to the following benefits from the able to provide better service at
energy resource developer or power producer, lower cost to consumers within
depending on the type of energy resource the pertinent host LGU. Once the
being developed or energy-generating facility PSC is established, the operator of
being constructed or operated: the energy-generating facility shall
provide, in a manner that will not
(a) Power Benefits. entail substantial incremental cost
to the operator, technical assistance
(1) Electrification. – (a) The power to the PSC, particularly in the area of
producer shall set aside twenty-five reducing system losses.
percent of one centavo (P 0.0025) per
kilowatt-hour of the total electricity (3) The PSC, or in its absence, the
sales of the energy-generating relevant franchise holder shall use
facility as an electrification fund the electrification fund exclusively
to be applied exclusively to the to defray the cost of necessary
missionary electrification of the capital expenditures associated with
official resettlement or relocation electrification such as distribution
sites of the community and the lines, transformers, and substations,
people affected, and thereafter, of and subsidiarily, associated
the relevant host LGU or host region operating expenses such as repairs
in the following order of radiating and maintenance. Priority in
benefit: (i) the host barangay, (ii) extending expenditure shall be given
the host municipality or city, (iii) the to the extension and upgrading of
host province, and finally (iv) the distribution lines: Provided however,
That the PSC or in its absence, the with the host province; and (iv) power
relevant franchise holder shall retain circuits in direct contact with the host
each year twenty percent (20%) region. The remaining seventy-five
of the amount it received for the percent (75%) shall be dispatched to the
year to defray the cost of repairs grid so as not to unreasonably deprive
and maintenance of its existing other municipalities, cities, provinces, or
distribution lines and substations. regions of their energy requirements.
The electrification fund shall be used
as provided in Section 6 (a) (1) (c): Towards this end, the energy generating
Provided however, That the assets facility, NPC, the relevant electric
financed by the electrification fund utility, and such other party that
shall not form part of the rate base, may be contractually involved with
and the maintenance expenses as the generation, transmission, and
well as the depreciation of the assets distribution of power shall reach an
financed by the electrification fund, agreement to ensure the implementation
shall not form part of the operating of this benefit, which agreement shall be
cost base of the PSC or relevant approved by the DOE.
franchise holder, for purposes of
setting its power tariffs and return The NPC, unless another government
on rate base. owned and/or controlled corporation
engaged in energy projects is designated
(4) The power producer shall be by the Secretary of the DOE, shall effect
responsible for directly remitting the the prioritization of load dispatch benefit
electrification fund to the PSC or in in the absence of a power purchase
its absence, the relevant franchise agreement or arrangement between the
holder. The DOE shall ensure that power producer and the electric utility
the electrification fund shall be in the relevant resettlement/relocation
used as provided in Section (a) (1) sites or host LGU/s.
(c). Towards this end, the DOE
shall formulate the appropriate (c) Reduction in the cost of electricity.
guidelines and mechanisms for fund
disbursement and utilization. (1) Pursuant to the mandate of Section
294 of the Local Government
(b) Prioritization of load dispatch. Code that “at least eighty percent
(80%) of the proceeds derived
In times of energy shortage, the energy- from the development utilization
generating facility shall prioritize up to of hydrothermal, geothermal, and
twenty-five percent (25%) of its contracted other sources of energy shall be
or available capacity (whichever is applied solely to lower the cost of
lower) which shall be delivered to electricity in the local government
the appropriate electric utility for unit where such a source of energy
distribution to the official resettlement/ is located,” host LGUs are strongly
relocation sites of the community and urged to operationalize this
people affected, and thereafter, to the directive through an appropriate
relevant host LGU or host region in the system. The term “proceeds from
following order of radiating benefit: (i) the development and utilization
power circuits in direct contact with the of hydrothermal, geothermal, and
host barangay; (ii) power circuits in direct other sources of energy” shall have
contact with the host municipality or the same meaning as it has under
city; (iii) power circuits in direct contact Section 294 of the Local Government
Code. No. 6685 and the applicable provisions
of Department Order No. 51 series of
(2) The host LGU, through its 1990 of the DPWH which sets forth the
sanggunian, may pass a resolution guidelines for the implementation of
specifying the terms of application Republic Act No. 6685.
of said proceeds pursuant to Section
294 of the Local Government Code. (f) Preference in Procurement of Local
The amount appropriated under the Supplies and Services.
resolution may be transferred to the
relevant PSC, REC or electric utility All energy resource developers and power
operating within the host LGU. In producers shall source their supplies and
turn, such PCC, REC or electric utility service requirement from within the host
shall immediately apply the amount LGU provided such supplies and services
in the next billing to lower the cost are available therein at competitive price,
of electricity in its franchised area delivery/service schedule, quantity, and
within the host LGU. quality.

(d) Skills Development. (g) Development and Livelihood Fund.

For the community and people affected (1) Consistent with Section 5 hereof,
as well as bona fide residents of the all power producers shall set aside
host barangay, and the host community twenty-five percent (25%) of one
or city, the energy resource developer centavo (P 0.0025) per kilowatt-hour
and/or power producer shall establish of the total electricity sales of the
relevant training and skills development energy-generating facility to establish
programs which may include the and maintain a development and
development of skills pertinent to livelihood fund.
business of energy generation or
electrification and skills in reforestation (2) The development and livelihood
and other agro-industrial skills. Towards fund shall be applied in an equitable,
this end, upon consultation with the preferential manner for the exclusive
appropriate government agencies, a benefit of the community and people
memorandum of agreement may be affected, the host LGU or region in the
entered into by the host barangay, the following proportions: five percent
host city or municipality, and the energy (5%) to the barangays hosting the
resource developer or power producer. official resettlement/relocation sites
For monitoring purposes, a copy of such of the community and the people
memorandum of agreement must be affected, fifteen percent (15%) to the
submitted to the DOE. host barangay, twenty-five percent
(25%) to the host municipality or
(e) Preference in Employment. city, twenty-five percent (25%) to the
host province, and the remainder to
Qualified members of the community the host region.
and people affected and qualified bona
fide residents of the host barangay and (3) The power producer and the energy
the host municipality or city shall be resource developer, to the extent
given preference in employment with of their respective contributions,
the energy-generating facility or energy shall administer the development
development operation pursuant to the and livelihood fund. They shall
procedure set out under Republic Act each submit to the DOE for the
latter’s approval, development developer shall remain primarily
and livelihood programs after responsible for the implementation
consultation with the appropriate of such program. For a unified
affected parties. watershed management effort,
however, the power producer and/
(4) The power producer and the energy or the energy resource developer
resource developer shall each hold shall turn over the amount allocated
its contribution to the development for reforestation and watershed
and livelihood fund in trust for the management to the watershed
beneficiaries as enumerated under reservation manager designated by
Section 6 (e) (2). Such funds shall law for the area.
not be mingled with its general fund
and must be deposited in interest The foregoing paragraph notwithstanding,
bearing accounts. Interest earned the DOE may, at the request of the power
on the development and livelihood producer and/or the energy resource
fund shall accrue to the benefits developer after consultation with the local
enumerated under Section 6 (e) (2). government officials, non-governmental
organizations and other affected parties,
(h) Reforestation, Watershed Management redirect part or all of said fund in any given
Health and/or Environment Enhancement year to other projects which are determined
Fund. to be more beneficial to the host LGUs with
particular attention, although not limited
(1) One-half of one centavo (P 0.0005) to environmental projects with long-term
per kilowatt-hour of the total benefits.
electricity sales of the energy-
generating facility shall be set After commercial operation commences,
aside by the power producer to be benefits and/or financial assistance advanced
used for reforestation, watershed after Republic Act No. 7638 became effective
management, health and/or or pursuant to these rules and regulations by
environment enhancement. The the energy resource developer or the power
power producer and the energy producer during pre-operation stage or before
resource developer, to the extent the start of commercial operation to secure
of their respective contribution the favorable endorsement of the community
to the fund, shall each submit and people affected or the host LGUs, shall be
work programs for reforestation applied at the rate of twenty percent (20%)
watershed management, health per year by the energy resource developer,
and/or environment enhancement power producer or successors-in-interest
which would have to be approved assignees thereof, against the benefits
by the DOE in consultation and required under these rules and regulations.
close coordination with the DENR,
the DOH, the relevant water Cost incurred or to be incurred by the power
districts, local government units, producer or the energy developer to comply
regional development councils, with environmental standards imposed under
non-government organizations, DENR Administrative Order Nos. 14 and
and other affected parties. The 14A and with such other stricter emission,
power producer and/or the energy safety, health or environmental standards
resource developer may provide for that may be imposed by any government
the contracting out of the proposed agency in the future, may be deducted from
activities, provided that the power the benefits required under these rules and
producer and/or the energy resource regulations, but at a rate of not more than
fifty percent (50%) of the total benefits (e) Procurement of local supplies
due in any year (inclusive of the twenty and services under Section 6 (e);
percent (20%) mentioned in the foregoing
paragraph): Provided, That if in any year (f) Development and livelihood
the cost of compliance exceeds fifty percent fund under Section 6 (e); and
(50%) of the total benefits for the year. The
uncovered cost shall be added to similar costs (g) Reforestation, watershed
in subsequent years until the full amount is management, health and/or
recovered without interest. environment enhancement fund
under Section 6 (f).
SECTION 7. Scope of Benefits. – The
community and people affected, the relevant (3) Mine-Mouth Coal Plants
host LGU (indicated in the foregoing section)
or the host region of the following energy- (a) Electrification benefits under
generating facilities or energy resource Section 6 (a) (1);
development projects shall be entitled to the
corresponding benefits set forth below: (b) Prioritization of load dispatch
under Section 6 (a) (2);
(a) Coal
(c) Reduction in the cost of
(1) Coal Mines electricity under Section 6 (a)
(3);
(a) Reduction in the cost of
electricity under Section 6 (a) (d) Skills development under
(3); Section 6 (b);

(b) Skills development under (e) Preference in employment
Section 6 (b); under Section 6 (c); and

(c) Preference in employment (f) Procurement of local supplies
under Section 6 (c); and and services under Section 6 (d);

(d) Procurement of local supplies (g) Development and livelihood
and services under Section 6 (d). fund under Section 6 (e); and

(2) Coal Thermal Power Plants (h) Reforestation, watershed
management, health and/or
(a) Electrification benefits under environment enhancement fund
Section 6 (a) (1); under Section 6 (f).

(b) Prioritization of load dispatch (b)
Geothermal Resource Development
under Section 6 (a) (2); Projects and Power Plants.

(c) Skills development under (1) Electrification benefits under Section
Section 6 (b); 6 (a) (1);

(d) Preference in employment (2) Prioritization of load dispatch under
under Section 6 (c); Section 6 (a) (2);


(3) Reduction in the cost of electricity (2) Prioritization of load dispatch under
under Section 6 (a) (3); Section 6 (a) (2);

(4) Skills development under Section 6 (3) Reduction in the cost of electricity
(b); under Section 6 (a);

(5) Preference in employment under (4) Skills development under Section 6
Section 6 (c); (b);

(6) Procurement of local supplies and (5) Preference in employment under
services under Section 6 (d); Section (b);

(7) Development and livelihood fund (6) Procurement of local supplies and
under Section 6 (e); services under Section 6 (d);

(8) Reforestation, watershed (7) Development and livelihood fund
management, health and/or under Section 6 (e); and
environment enhancement fund
under Section 6 (f). (8) Reforestation, watershed
management, health and/or
Inasmuch as geothermal resource environment enhancement fund
development projects and under Section 6 (f).
geothermal power plants are integral
to each other, the community and Inasmuch as hydro development
people affected, the pertinent host projects and hydroelectric power
LGU or host region shall be entitled plants are integral to each other, the
to only one set of benefits from the community and people affected, the
geothermal resource developer pertinent host LGU or host region
and power plant operator which, shall be entitled to only one set of
with the exception of the benefit benefits from the hydro developer
provided under Section 6 (a) (3), and power plant operator which with
shall be shared by them equitably. the exception of the benefit provided
Among the community and people under Section 6 (a) (3), shall be
affected, the pertinent LGU or region shared by them equitably. Among
hosting the geothermal resource the community and people affected,
development project and those the pertinent LGU or region hosting
hosting the geothermal power the hydro reservoir and those hosting
plant, the DOE shall determine in the hydroelectric power plant, the
an equitable manner the actual DOE shall determine in an equitable
sharing of benefits between them manner the actual sharing of benefits
upon consultation with the affected between them upon consultation
parties. with the affected parties.

(c) Hydro Resource Development Projects (d) Oil/Petroleum/Natural Gas.
and Power Plants.
(1) Indigenous Petroleum
(1) Electrification benefits under Section
6 (a) (1); (a) Reduction in the cost of
electricity under Section 6 (a)
(3);
(b) Skills development under (e) Procurement of local supplies
Section 6 (b); and services under Section 6 (d);
and
(c) Preference in employment
under Section 6 (c); and (f) Development and livelihood
fund equivalent to one-half
(d) Procurement of local supplies of one centavo (P 0.005) per
and services under Section 6 (d). kilowatt hour, which amount
shall be applied in an equitable
(2) Oil-Fired Power Plants. preferential manner in
accordance with the proportion
(a) Electrification benefits under prescribed under Section 6 (e)
Section 6 (a) (1); (2).

(b) Prioritization of load dispatch SECTION 8. Exemptions. –
under Section 6 (a) (2);
(a) Each of the following shall be exempted
(c) Skills development under from providing the benefits required
Section 6 (b); under these rules and regulations:

(d) Preference in employment (1) a small-scale coal mining (SSCM)
under Section 6 (c); permittee;

(e) Procurement of local supplies (2) an energy-generating facility with
and services under Section 6 (d); an aggregate installed capacity or
operating generating capacity that is
(f) Development and livelihood less than ten (10) megawatts (MW);
fund under Section 6 (e); and
(3) an energy-generating facility located
(g) Reforestation, watershed in a special economic zone which
management, health and/or sells or exports less than ten (10)
environment enhancement fund megawatts (MW) of its surplus
under Section 6 (f). power output outside of the special
economic zones where it is located;
(3) Natural Gas- and LNG-Fired Power
Plants. (4) an energy-generating facility for the
exclusive internal use of the owner
(a) Electrification benefits under (e.g., integrated to the plant); and
Section 6 (a) (1);
(5) an on-going energy-generating
(b) Reduction in the cost of project with a negotiated benefits
electricity under Section 6 (a) package which is better than or
(3); at least substantially equal to the
benefits provided hereunder, as
(c) Skills development under determined and certified by the DOE.
Section 6 (b);
(b) Consistent with the policy of the State
(d) Preference in employment to accelerate the development and
under Section 6 (c); commercialization of non-conventional
energy systems, and to provide incentives
for energy efficient technologies (such funds shall keep and maintain complete
as cogeneration facilities), energy- and separate books of account for such
generating facilities which utilize non- funds in accordance with generally accepted
conventional energy resources, or accounting principles. In addition, the power
energy efficient technologies shall not be producer, the energy resource developer,
required to provide the host LGU and/or (the and) the fund administrator shall submit
host region with the benefits enumerated to the DOE every six (6) months a detailed
in these rules and regulations. statement of the sources and uses of such
funds. With respect to said funds, the DOE
(c) In meritorious cases similar to those shall have the right to inspect, review, and
enumerated in the foregoing Section 8 (a) audit the books of accounts of the power
and (b), the DOE may, after consultation producer, the energy resource developer
with the affected parties, grant full or and the fund administrator to ascertain and
partial exemption upon application by ensure compliance with these rules and
the energy resource developer or power regulations, particularly that the funds had
producer. been and are being expended in accordance
herewith. In this connection, the power
(d) In any case of two or more proximate producer, the energy resource developer,
energy-generating facilities owned and the fund administrator shall allow duly
or operated directly or indirectly by authorized representatives of the DOE full
the same person or entities, each of access to their respective accounts, books and
which was split to meet the criteria for records. Should the DOE find that the funds
exemption under Section 8 (a) (2) and (3), are not being spent by the power producer,
the Secretary may, in order to prevent the energy resource developer and the fund
evasion of these rules and regulations, administrator in accordance with these rules
consider said facilities as one. “Control” and regulations, the DOE may assign the
shall mean ownership of stocks in a funds to another entity to enable the fund
corporation possessing at least one-third purpose to be duly accomplished.
of the total voting power of all classes of
stock entitled to one vote. The DOE may require the power producer,
the energy resource developer, or the fund
(e) Notwithstanding Section 8 (a) and (b), administrator to post a bond therewith in an
consistent with Section 5 (i) of Republic amount to be determined by the DOE.
Act No. 7638, the Secretary of the
Department of Energy may authorize SECTION 10. Implementation and
government-owned and/or controlled Enforcement Measures. The DOE shall take
corporations engaged in energy resource all necessary reasonable measures to ensure
development and/or energy-generating the proper enforcement of these rules and
projects, to provide benefits or financial regulations, which measures shall not be
assistance to host LGUs equivalent to limited to those specified under this Section.
those required under these rules and
regulations, and approve the same. In the event of violation or non-compliance
with these rules and regulations, the DOE
SECTION 9. Review and Audit. – With respect may, upon prior notice and hearing to the
to the electrification fund, the development power producer or the energy resource
and livelihood fund, and the reforestation, developer, (a) issue an order to the power
watershed management, health and/or producer or the energy resource developer
environment enhancement fund, the power to cease and desist operations; and/or (b)
producer, the energy resource developer withdraw, suspend, revoke, cancel, or annul
and the fund administrator of any of these the geophysical survey or service contract
of the energy resource developer of the period shall be for the benefit of the trust.
accreditation status granted to the power After due consultation with the relevant
producer. However, in the case of willful affected parties, the DOE shall formulate such
violation of or willful failure to comply guidelines.
with these rules and regulation, the DOE
may, without prior notice and hearing, but SECTION 13. Separability Clause. – If any
after proper investigation or verification, clause, sentence, paragraph or part of these
muto propio, or upon verified complaint rules and regulations shall be judged by any
by any aggrieved party, proceed with the Court of competent jurisdiction to be invalid
enforcement measures enumerated in this or unconstitutional, such judgment shall not
paragraph. affect, impair, or invalidate the remainder
of said rules and regulations, but shall be
SECTION 11. Settlement of Disputes. – confined in its operation to the clause,
All conflicts or disputes arising from the sentence, paragraph, or part thereof directly
implementation of these rules and regulations involved in the controversy.
shall be under the jurisdiction of the DOE.
SECTION 14. Effectivity. – These rules and
SECTION 12. Transition Period. – The regulations, and any amendments thereto
electrification fund (including increments shall take effect upon the lapse of thirty (30)
thereto), the development and livelihood days from complete publication in the Official
fund, and the reforestation, watershed Gazette, or in one (1) newspaper of general
management, health and/or environment circulation, whichever occurs earlier.
enhancement fund (when applicable) shall be
kept in trust by the power producer pending DELFIN L. LAZARO
the formalization of the relevant guidelines Secretary
on fund utilization and disbursement by the 24 May 1994
DOE. Interest earned during the transition
ENERGY REGULATION NO. 1-94-A
AMENDING ENERGY REGULATIONS NO. 1-94, DATED 24 MAY 2004 WHICH PRESCRIBED RULES AND
REGULATIONS IMPLEMENTING SECTION 5 (i) OF REPUBLIC ACT NO. 7638, OTHERWISE KNOWN AS
THE DEPARTMENT OF ENERGY ACT OF 1992
WHEREAS, Energy Regulations No. 1-94 issued benefits required under the said regulations;
on 24 May 1994 prescribed the provision of
direct benefits to pertinent local government WHEREAS, the Philippine Natural Gas Project
units hosting energy resources and/or is deemed as a high priority project that
energy-generating facilities within their would need the favorable endorsement and
territorial jurisdiction, pursuant to Section 5 full support to host LGUs of power plants fired
(i) of Republic Act No. 7638 (Department of by natural gas, including liquefied natural gas
Energy Act of 1992); (LNG), but is precluded from authorizing the
same under the said regulations;
WHEREAS, under Section 8 of E.R. 1-94, an
energy-generating facility fired by natural WHEREAS, considering that natural
gas shall be exempted from providing the gas and LNG have been recognized as
environment-friendly fuel that will have very proportion prescribed under
minimal adverse environmental impact on Section 6 (e) (2).”
communities affected, thereby unnecessary
the provision of benefits for reforestation, (2) Amendment to Section 8 (a) of E.R. 1-94
watershed management, health and/or by deleting sub-section (5) to exclude
environment enhancement; natural gas from the exemptions, to read
as follows:
WHEREFORE, premises considered, the DOE
“SEC. 8. Exemptions. –
hereby adopts and promulgates the following
amendments to E.R. 1-94: “(a)
Each of the following shall be
exempted from providing the
(1) Amendment to Section 7 (d) of E.R. 1-94 benefits required under these rules
to provide corresponding set of benefits and regulations:
exclusively for natural gas, LNG- and LPG-
fired power plants, by deleting natural “(1) a small-scale coal mining (SSCM)
gas resource development projects under permittees;
sub-section (i) and adding sub-section
“(2) an energy-generating facility
(3), to read as follows:
with an aggregate installed or

operating capacity that is less
“SEC. 7. (d) Oil/Petroleum/Natural Gas.
than ten (10) megawatts (MW);

“(1) Indigenous Petroleum “(3) an energy-generating facility
located in a special economic
xxx zone which sells or exports less
than ten (10) megawatts (MW)
“(3) Natural Gas- and LNG-fired Power of its surplus power output
Plants outside of the special economic
zones where it is located;
“(a) Electrification benefits under
Section 6 (a) (1); “(4) an energy-generating facility for
the exclusive internal use of the
“(b) Reduction in the cost of owner (e. g., integrated to the
electricity under Section 6 (a) industrial plant); and
(3);
“(5) an on-going energy-generating

“(c)
Skills development under plant with a negotiated benefits
Section 6 (b); package which is better than or
at least substantially equal to the
“(d)
Preference in employment
benefits provided hereunder, as
under Section 6 (c);
determined and certified by the
“(e) Procurement of local supplies DOE.”
and services under Section 6 (d);
This Amendment shall take effect upon the
and
lapse of fifteen (15) days from complete
“(f)
Development and livelihood publication in one newspaper of general
fund equivalent to one-half circulation in the Philippines.
of one centavo (P 0.005) per
31 July 1996, Fort Bonifacio, Metro Manila.
kilowatt hour, which amount
shall be applied in an equitable FRANCISCO L. VIRAY
manner in accordance with the Secretary

FURTHER AMENDING THE PROVISIONS OF ENERGY REGULATIONS 1-94, ENTITLED “RULES AND
REGULATIONS IMPLEMENTING SECTION 5 (i) OF REPUBLIC ACT NO. 7638, OTHERWISE KNOWN
AS THE “DEPARTMENT OF ENERGY ACT OF 1992” AND ITS ATTENDANT RULES AND PROCEDURES

WHEREAS, Energy Regulations (E.R.) No. of the financial benefits required under E.R.
1-94 promulgated on May 24, 1994 by the No. 1-94 and established Trust Accounts for
Department of Energy (DOE) prescribed the electrification fund, the development
the provisions of direct benefits to permit and livelihood fund and the reforestation,
local government units (LGUs) hosting watershed management, health and/or
energy resource development projects and/ environment enhancement fund for the
or energy-generating facilities within their benefit of LGUs which are hosts to energy
territorial jurisdiction, pursuant to Section 5 generating facilities and/or energy resource;
(i) of Republic Act No. 7638 (Department of
Energy Act of 1992); WHEREAS, full implementation of the grant
of financial benefits has been hampered by
WHEREAS, E.R. No. 1-94 required energy concerns and issues requiring clarification of
resource developers and/or power producers certain provisions of the aforesaid E.R. and
to provide, among others, a set of financial circulars;
benefits equivalent to one centavo per
kilowatt-hour from electricity sale proceeds WHEREAS, the DOE conducted consultations
from their energy projects or energy- with he concerned parties to address the
generating facilities; aforesaid concerns and issues;

WHEREAS, under Section 6 of E.R. No. 1-94, WHEREAS, upon said consultations, it
the host LGUs and host regions are entitled has become imperative to amend certain
to the following benefits from the energy provisions of the aforesaid E.R. and circulars to
resource developers and/or power producer: rationalize the above-mentioned allocations
so as to effectuate more direct and immediate
(a) 25% of one-centavo (P 0.0025) per benefits to concerned LGUs hosting energy
kilowatt for electrification fund; generating facilities and/or energy resource;

(b) 25% of one-centavo (P 0.0025) per WHEREFORE, premises considered, the DOE
kilowatt for development and livelihood hereby adopts and promulgates the following
fund; and amendments to certain provisions of E.R. No.
1-94 and its attendant rules and guidelines:
(c) 50% of one-centavo (P 0.005) per
kilowatt for reforestation, watershed SECTION 1. Amendments to Section 3 of E.R.
management, health and/or environment No. 1-94 on Scope of Application, to read as
enhancement fund; follows:

WHEREAS, Department Circular No. 95- “These rules and regulations
11-009 and Department Circular No. 96- shall apply to energy resource
08-009, issued November 8, 1995 and development projects and energy-
August 9, 1996, respectively, prescribed the generating facilities located in all
guidelines and procedures for the granting barangays, municipalities, province

including those located within the “(3) With respect to integrated
Metropolitan Manila, Metropolitan energy generating facilities, the
Cebu (Cebu City, Lapu-Lapu City, host LGU or region is that where
Mandaue City), Metropolitan Davao the energy-generating facilities and
and other highly urbanized cities as energy resources are located.
defined under Section 452 of the
Local Government Code.” “1. With respect to energy-generating
facilities and/or energy resource
SEC. 2. Amendment to Section 5 of E.R. No. located in a special economic zone,
1-94 on Beneficiaries. – Section 5.c. is hereby the host LGU or region is that where
amended to clarify provisions of sections the special economic zone is located.”
5.c.(2) (b) and 5.c.(2) (c) and incorporate new
Sections 5.c.(3) and 5.c.(4), to read as follows: SEC. 3. Amendments to Section 6 of E.R. No.
1-94 on Nature of Benefits.
“Section 5.c. Host LGU or region
shall be understood as follows: (a) In line with the thrust of the
government to improve access of
xxx electricity services to rural and non-
viable areas and the high demand
“1. With respect to energy resources: for electrification projects, the DOE
finds it more beneficial to increase
“(b) Geothermal. The host LGU with the fund allocation for electrification.
respect to geothermal resources is
where the producing geothermal (i) Section 6.a.(1) of E.R. No. 1-94
reservoir is located as delineated is hereby amended to read as
by geochemical, geophysical, and follows:
exploration surveys. “Producing
geothermal reservoir” refers to the “Section 6.a.(1) Electrification
subsurface geological environment
where the geothermal fluids “(a) The power producer and/or
accumulate and circulate, inclusive energy resource developer shall
of the production and re-injection/ set aside fifty percent of one-
recharge zones. centavo (P 0.005) per kilowatt-hour
of the total electricity sales of the
“(c) Hydro. The host LGU with energy-generating facilities as an
respect to energy resources is where electrification fund to be applied in
the hydro reservoir is located as the following radiating manner: (i)
delineated by detailed topographic, the official resettlement or relocation
geological, and geotechnical sites of the community and people
investigation, reservoir and dam affected: (ii) the host barangay; and
height optimization studies; and (iii) the host municipality or city.
as delineated by detailed ground
surveys. “Hydro reservoir” refers to “After electrification has reached the
either a natural lake or an artificial municipal or city level, fifty percent
lake created by the impounding of (50%) of the said electrification fund
stream flow, runoff and subsurface or P 0.0025 per kilowatt-hour of
water behind the dam. total electricity sale shall be utilized
for the electrification of barangays
xxx within the host province and
region with priority given to arrears
identified in the provincial/regional Section: Provided, That in the case
development plan or energization where such project is implemented
plan. The remaining fifty percent through a contractor other than the
(50%) of the electrification fund or franchised distribution utility, all
P 0.0025 per kilowatt-hour of total works shall be done in conformity
electricity sales shall be utilized for with the standard construction
energy-intensive development and assemblies, duly accepted by the
livelihood projects or reforestation, franchised distribution utility.
watershed management, health
and/or environment enhancement “(d) In order to achieve and maintain
projects of the host communities efficient, reliable and adequate
following the proportion in Sec. 6.e. supply of electricity, the total
of E.R. No. 1-94, as amended by electrification fund may be utilized to
Section 3 (a) (ii) and Section 3 (a) (iii) defray the cost of necessary capital
hereof. expenditures other than distribution
lines such as but not limited to power
“(b) In implementing said order of transformers, substations and other
radiating benefit, priority shall be power line equipment devices, and
given to the more populous barangay associated operating expenses such
that is nearer in distance to the power as repairs and maintenance, subject
plant and thereafter to the more to the evaluation of the DOE.
populous barangay that is nearer in
distance to the energy source. Any “(e) All facilities financed from the
dispute regarding the sequence of electrification fund shall be owned,
electrification of barangays shall be operated and maintained by the
settled through a final determination relevant franchised distribution
by the DOE after due consultation utility which is obligated to provide
with the affected parties. In settling services to the concerned LGU. The
such disputes, the DOE shall give due distribution utility may however,
weight to the relative population contract the operation and
density and proximity of the maintenance of the line to the private
energy-generating facilities to the sector provided that the electricity
contending host LGUs, as well as rate charges to the customers shall be
proximity to the nearest taping point approved by the Energy Regulatory
of the franchised distribution utility. Board (ERB). Notwithstanding the
foregoing provisions, for purposes of
“(c) Electrification of host LGUs or setting the power tariffs and return
region shall be undertaken by the on rate base, the assets financed
relevant franchised distribution by the electrification fund shall not
utility or any of its duly accredited form part of the rate base. Likewise,
contractor/s, herein referred to as the the maintenance expenses as well
project implementor. To accelerate, as the depreciation of the assets
however, energization of host LGUs financed by the electrification fund,
or region, the power producer shall not form part of the operating
or energy resource developer or cost base of the relevant franchised
their respective duly accredited distribution utility.”
contractor/s may implement such
projects subject to the condition set (ii) Section 6.e. is hereby amended
forth under sub-paragraph (e) of this to read as follows:

“Section 6.e. Development and “(c) Host Municipality/City – 35%
Livelihood. “(d) Host Province – 30%
“(e) Host Region – 10%
xxx
“Provided, that in the absence of
“1. The development and livelihood official resettlement area, funds
fund shall be applied in an equitable allocated for the resettlement
preferential manner for the exclusive shall form part of the allocation of
benefit of the community and people the host barangay. Reforestation
affected, the host LGU or region in and watershed projects shall be
the following manner: prioritized by the following:

“(a) Resettlement Area – 5% “(a) Concerned DOE attached
“(b) Host barangay – 20% agencies for energy reservations;
“(c) Host Municipality/City – 35% and
“(d) Host Province – 30%
“(e) Host Region – 10% “(b) DENR Regional Office for non-
energy reservation areas.”
“Provided, that in the absence of
official resettlement area, funds (iv) The following additional
allocated for the area shall form paragraphs are hereby incorporated
part of the allocation of the host after Section 6.f of E.R. No. 1-94, to
barangay. For funds allocated to read as follows:
the host province and host region,
preferential benefits shall be given “The foregoing paragraph
to communities hosting the areas notwithstanding, financial benefits
traversed by transmission lines and required from power producer
substations or similar facilities.” and/or energy resource under Sec.
6.e and Sec. 6.f of E.R. No. 1-94, as
(iii) Section 6.f. is hereby amended amended in Section 3 (a) (ii) and
to read as follows: Section 3 (a) (iii) hereof, with respect
to energy-generating facilities
“Section 6.f. Reforestation, located within the Metropolitan
Watershed Management, Health and Manila, Metropolitan Cebu (Cebu
or/Environment Enhancement Fund City, Lapu-Lapu City, and Mandaue
City), Metropolitan Davao and
One-fourth of one centavo (P other highly urbanized cities shall
0.0025) per kilowatt-hour of the be set aside into one account to
total electricity sales of the energy- finance electrification projects
generating facilities shall be set and thereafter, any development,
aside by the power producer and/ livelihood, reforestation, watershed
or energy resource developer to be management, health and/or
used for reforestation, watershed environment enhancement projects
management, health and/or deemed beneficial to any host
environment enhancement which barangay, host municipality/city and
shall be allocated as follows: host province.

“(a) Resettlement Area – 5% “Electrification of host LGUs shall be
“(b) Host Barangay – 20% based on the following priority areas:

“(a) Resettlement area, host to these rules and regulations, shall
barangay and host city of the be credited by the energy resource
energy generating facilities and/ developer, power producer or
or energy resource; successor-in-interest assignees
against the benefits required under
“(b) Host communities of other these rules and regulations.
facilities and/or energy resource
with insufficient accrued “The total advanced financial
electrification fund; assistance shall be amortized at
a rate of twenty percent (20%) of
“(c) Areas traversed by transmission the total accrued yearly financial
lines and sub-stations or similar benefits, irrespective of the type of
facilities; and projects and programs implemented,
until such time that the expenses
“(d) Areas not directly connected to have been fully paid.”
the grid or national transmission
system which include isolated or SEC. 4. Consistent with Section 3 hereof,
remote communities.” Section 7.d of E.R. No. 1-94, as amended by
E.R. No. 1-94-A, is hereby amended to read
“In the case of an integrated energy as follows:
generating facility where the
generating facility is located within “Section 7.d. Oil/Petroleum/Natural
a highly urbanized city and the Gas.
corresponding resource is located
outside the said highly urbanized “1. Indigenous Petroleum and/or
city, the financial benefits shall be Natural Gas Resources Development
utilized in accordance with Section Projects
6.e and Section 6.f of E.R No. 1-94, XXX
as amended in Section 3 (a) (ii) and
Section 3 (a) (iii) hereof.” “1. Natural Gas-and LNG-fired Power
Plants
(v) The last two paragraphs of
Section 6 on Advanced Financial “(a) Electrification benefits
Assistance is amended to read as equivalent to twenty-five percent
follows: of one centavo (P 0.0025) per
kilowatt-hour to be applied in the
“After commencement of the radiating manner: (i) the official
commercial operation of a power resettlement or relocation sites
generating facility, the benefits and/ of the community and people
or financial assistance advanced affected; (ii) the host barangay;
by the energy resource developer (iii) the host municipality or city,
or the power producer during (iv) host province; and (v) host
pre-operation stage or before the region;
start of commercial operation for
the purpose of securing favorable “(b) Skills development under
endorsement from the community Section 6 (c);
and people affected or the host
LGUs, after Republic Act No. 7638 “(c)
Preference in employment
has became effective or pursuant under Section 6 (c);

“(d) Procurement of local supplies the generated electricity to the
and services under Section 6 (d); NPC with respect to EF, DLF and
RWMHEEF; and
“(e)
Development and livelihood
fund equivalent to fifty percent “(d) For IPPs involving sale of the
of one centavo (P 0.005) per generated facilities/projects
kilowatt-hour, which amount to the franchised electric
shall be applied in an equitable distribution utilities with respect
preferential manner in to EF, DLF and RWMHEEF.
accordance with the proportion
prescribed under Section 6 (e) of “(3) In the event that the energy
E.R 1-94 as amended in Sec. 3 (a) generating facilities/projects of
(ii).” the NPC have been privatized, all
funds shall be transferred to DOE
SEC. 5. Amendment to Department Circular for administration. Accordingly,
No. 95-11-009. – Memorandum of Agreements
(MOAs) entered into by NPC and
(a) Amendment to Section 1.e, to read as DOE shall be amended to reflect new
follows: owner of the facility and assignment
of responsibilities to the new owner
“Section 1.e. Administration of the for the settlement of fund to DOE.”
funds shall be undertaken by any of
the following: (b) Amendment to Section 4 of Department
Circular 95-11-009 on Project
“(1) The National Power Corporation Implementation, to read as follows:
(NPC), for its energy-generating
facilities/projects, with respect to “SEC. 4. Project Implementation
DLF and RWMEEF.
“(a)
The power producer and/or
“(2) The DOE, through its Financial energy resource developer
Management Services, for and on shall assist the host LGUs in
behalf of energy-generating facilities the preparation of annual work
and/or energy resource development program/project proposals
projects owned and/or operated by consistent with Annex “A”, to
the following entities: be implemented in any given
year. The amount of financial
“(a) For NPC with respect to EF; benefit accruing to the pertinent
funds in the immediate
“(b) For NPC-Philippine National Oil preceding year shall be used
Company (PNOC) integrated as basis in the preparation of
energy projects with respect to annual work program/project
EF, DLF and RWMHEEF; proposals. The said annual
work program/project proposal
“(c) For independent power shall be submitted by the
producers (IPPs) under such power producer and/or energy
private power schemes as Built- resource developer not later
Operate-Transfer (BOT), Energy than 15 March of every year.
Conversion Agreement (ECA),
Rehabilitate-Operate-Lease “(b)
All work programs/project
(ROL), etc., and involving sale of proposals for DLF and RWMHEEF
shall be implemented within Office or the watershed
one year upon receipt of funds. management administrator in
Said work programs/projects the area.
proposals shall be implemented,
supervised and administered by “(e) For electrification program,
the concerned LGU. the power producer and/or
energy resource developer
“(c) The power producer and/or shall coordinate with the
energy resource developer shall concerned relevant franchised
review work programs/project distribution utility in the
proposals on development and development of said program
livelihood, and reforestation, for the communities/barangays
watershed management, energization/prioritization in
health and/or environment any given year. The annual
enhancement duly endorsed electrification programs shall
by the host LGUs/region be directly transmitted to the
through a resolution passed DOE through EIAB for review
by its sanggunian/Regional and evaluation. The NEA shall
Development Council. In the assist the DOE in the review and
case of the official resettlement evaluation of said electrification
area, work program/project programs. Thereafter, project
proposals may be endorsed by implementation shall proceed
the resettlement organization, as prescribed under Sub-section
association or cooperative f(2) hereof.
duly certified by the power
producer and/or energy “(f) Upon submission of complete
resource developer and documentation of the work
registered under the concerned program/project proposals,
government agencies. The project implementation shall
power producer and/or energy proceed in any of the following
resource developer shall make manner:
the appropriate endorsement
of annual work program/ “(1) For development and livelihood,
project proposals to DOE for and reforestation, watershed
further review and approval. management, health and/or
The review and approval of environment enhancement projects
said work program/project a Memorandum of Agreement (MOA)
proposals shall be completed shall be forged among the DOE, power
by DOE within twenty (20) producer and/or energy resource
days upon receipt of complete developer, and the concerned LGU
documentation. Thereafter, to effect project implementation and
project implementation shall funds commitment. The DOE/NPC
proceed as prescribed under for their respective administered
Sub-section f (l) hereof. fund shall then make the necessary
fund allocation and shall forthwith
“(d) For reforestation and watershed release the project funds directly to
management projects, work the concerned host LGU or relevant
program/project proposals project implementor within fifteen
should be coordinated and (15) days upon submission of
endorsed by the DENR Regional complete supporting documents
pursuant to the provisions in the (c) Consistent with Section 5.b hereof, the
MOA. Annexes of A, B and C of Department
Circular No. 95-11-009 are hereby
“(2) For electrification projects, a repealed.
Memorandum of Agreement (MOA),
shall be forged among the DOE, SEC. 6. Amendment to Section 1 (f) of
relevant franchised distribution Department Circular No. 95-11-009, as
utility/project implementor, power amended by Department Circular No. 98-11-
producer and/or energy resource 010, to read as follows:
developer, and the concerned host
LGU to effect funds commitment “(f) All interest earnings from the
and project implementation. The funds shall be set aside into one trust
DOE shall then make the necessary account to be utilized in the order of
fund allocation and shall forthwith the following priority:
release the funds allocation and shall
forthwith release the funds to the “(a) Electrification of the direct host
franchised distribution utility/project barangay and host municipality/
implementor within fifteen (15) city with insufficient accrued
days upon submission of complete electrification fund;
supporting documents pursuant to
the provisions in the MOA. “(b) Electrification of areas traversed
by transmission lines and substations
“(a) Implementation of electrification or similar facilities;
projects utilizing funds accrued
since the establishment of the “(c) Electrification of areas not
trust accounts shall follow Sub- directly connected to the grid
section (e) and Sub-section (f) or national transmission system
(2) hereof. which include isolated or remote
communities; and
“(b) All fund disbursements shall
follow government accounting “(d) Any project that will protect the
and auditing rules and host LGUs and sustain the operation
regulations. of the energy resource/energy
generating facilities.”
“(c) In the event of unjustified
disbursement of fund and non- SEC. 7. Amendments to Department Circular
completion or delay in the No. 96-08-009. –
implementation of the work
program by the LGU concerned, (a) Amendments to Section III on Utilization
the DOE shall defer releases of of the Electrification Fund, to read as
fund for the succeeding year/s or follows:
take appropriate and reasonable
measures to impose necessary “In cases where the grid-type is
sanctions in accordance with any deemed unviable for particular host
existing and future government LGU or host region, as determined by
rules and regulations until such the DOE, the funds intended for the
time that the LGU would be able purpose may be ordered redirected
to justify said disbursement to by the DOE for appropriate energy
the satisfaction of the DOE.” projects that can provide immediate
electrification to such host LGU or
region, through the use of new and “(ii) For integrated energy resource
renewable energy (NRE) technologies and energy generating facilities
with electricity-generating potentials where the facilities are located
like solar energy, mini-hydro, biomass in a highly urbanized city and the
and such other similar projects. corresponding energy resource is
located outside said city, sharing
“New and renewable energy project shall be as follows:
proposals for host LGU or region
shall be referred by the Energy “(a) 50% for the host communities of
Industry Administration Bureau energy generating facilities; and
(EIAB) to the Energy Utilization
Management Bureau (EUMB) of “(b) 50% for the host communities of
the DOE for evaluation. The NRE energy resource.”
technology recommended by EUMB
to be adapted may be contracted out SEC. 8. Community Relations Officer
by the DOE. (COMREL). –

“For the purpose of this subsection, a The power producer and/or energy resource
rural energy service provider having developer is hereby required to designate
expertise and good track record in one Community Relations Officer (COMREL)
the field of indigenous or renewable for each power plant, tasked to:
energy development, may be tapped
to implement the electrification of (a) Coordinate with the LGU on the
the host LGUs.” preparation of its annual work program/
project proposals;
(b) Amendments to Section IV on Sharing of
Benefits, to read as follows: (b) Assist in the preparation of all work
program/project proposals prior to
“IV. Sharing of Benefits release of funds;

“(i) In the event that the generating (c) Monitor the implementation of all
facilities and/or the energy resource DOE approved work programs/project
overlaps more than one host LGU, proposals; and
the development and livelihood fund
and the reforestation, watershed (d) Act as liaison officer to all concerned
management, health and/or government agencies relative to the
environment fund shall be equally implementation of E.R. No. 1-94, as
allocated among host LGUs: Provided, amended.
however, That in cases where the
political boundaries of the energy SEC. 9. Qualified development and livelihood
generating facilities and/or energy (D & L) and reforestation, watershed
resource are clearly delineated by management, health and/or environment
land surveys duly approved by the enhancement (RWMHEE) projects. –
DENR-Land Management Bureau,
sharing shall be allocated based All work program/project proposals should
on the percentage of the land area be able to demonstrate the potential for
occupied by the said generating enhancing progress, the provision of a decent
facilities and/or energy resource. source of livelihood, or the upliftment of the
community’s general condition of living. In
this regard, the DOE deemed it appropriate
to qualify projects on D&L and RWMHEE as (d) Provisions for interest earnings shall be
listed under Annex “A” hereof. applied since the establishments of trust
accounts and the succeeding quarters
SEC. 10. Other Provisions. – thereafter.

(a) All Department Circulars, Orders, (e) This Department Circular shall take
Memoranda or other issuances or effect fifteen (15) says after its complete
portions thereof which are inconsistent publication in a newspaper of general
with this Circular are hereby superseded, circulation.
modified or amended accordingly.
Fort Bonifacio, Taguig, Metro Manila, 17
(b) All exemptions previously granted by March 2000.
the DOE to power producer and/or
energy resource developer in respect to MARIO V. TIAOQUI
the required financial benefits, unless Secretary
otherwise provided for in this Circular,
shall continue to be enforced. Witnessed by:

(c) All provisions of this Circular shall be NAZARIO C. VASQUEZ
applied to the financial benefits accrued President, PNOC-EDC
from the period 26 December 1998 and
the succeeding quarters thereafter. EDGARDO BAUTISTA
President, SEP
DEPARTMENT OF INTERIOR AND LOCAL GOVERNMENT

AND
JOINT CIRCULAR NO. 95-01

October 31, 1995
To: ALL LOCAL CHIEF EXECUTIVES, SANGGUNIANGBAYAN/PANGLUNGSOD/

PANLALAWIGAN MEMBERS OTHER CONCERNED PARTIES
Subject: GUIDELINES AND PROCEDURES ON THE UTILIZATION OF THE SHARE

OF NATIONAL WEALTH TAXES, ROYALTIES, FEES OR CHARGES

This Circular is issued to prescribe the the utilization of the 80% of the net proceeds
guidelines and procedures to be followed derived from either the one percent (1%) of the
by the host Local Government Unit (LGU) to gross sales or receipts of the preceding fiscal
implement the provisions of Republic Act year or forty percent (40%) of the national
(RA) 7160 otherwise known as the Local wealth taxes, royalties, fees or charges
Government Code (LGC) of 1991 and its derived by any national government-owned
Implementing Rules and Regulations (IRR) or controlled corporation in the development
specifically on Sections 289-294 of the LGC and utilization of hydrothermal, geothermal
and Art. 388-392 of its IRR which provide for and other sources of energy, whichever
will produce a higher share for the local kWh or lowering the electric bill of the
government unit, and forty percent (40%) of consumers within the particular area of
the gross collection derived by the national the host LGU.
government from the preceding fiscal year
from royalties and such other fees or charges 1.6 Electric Franchise Holder – refers to a
and from its share in any co-production, joint person, whether natural or juridical,
venture or production sharing agreement in who is privileged to operate, maintain
the utilization and development of national and/or distribute electric power within a
wealth within their territorial jurisdiction. specified geographic area.
Moreover, this Circular will provide the 1.7 Mining Taxes – refers to excise taxes
mechanics and options for the host LGU in the imposed on the privilege to explore,
application of direct benefits to communities develop and exploit mining resources.
which shall be eighty percent (80%) of the For internal revenue tax purposes, mining
proceeds derived from the national wealth taxes shall refer only to the excise tax on
taxes, royalties, fees or charges to be applied mineral products imposed under Sec.
solely to lower the cost of electricity in the 151 (a) of the National Internal Revenue
LGU where such a source of energy is located. Code, as amended by E.O. No. 273.
Section 1. DEFINITION OF TERMS 1.8 Geothermal sources – refer to all

geothermal fluids existing naturally or
1.1 National Wealth-refers to all natural formed by the artificial introduction of
resources situated within the Philippine fluids into naturally hot formations, heat
territorial jurisdiction including lands energy in the earth, and any by-products
of public domain, water, minerals, coal, derived from these.
petroleum, mineral oils, potential energy
sources, gas and oil deposits, forest 1.9 Hydrothermal sources – refer to natural
products, wildlife, flora and fauna, fishery streams, rivers or lakes that can be
and aquatic resources and all quarry harnessed to provide the combination
products. of adequate flow and heat essential for
hydropower generation.
1.2 National Wealth Taxes, Royalties, Fees
or Charges any levy or tax, royalty, fee Section 2. GENERAL GUIDELINES
or charge derived from the development
and utilization of the natural wealth. 2.1 REDUCTION OF COST OF ELECTRICITY
1.3 Host LGU refers to the local government To implement the provision under
unit (barangay, municipality, city or Section 294, Book II of the Local
province) where the facility extracting Government Code that “at least eighty
national wealth is located. percent (80%) of the proceeds derived
from the development and utilization
1.4 Subsidy Scheme is a plan designed to of hydrothermal, geothermal and other
extend directly to intended beneficiaries sources of energy shall be applied solely
the amount of LGU’s share in national to lower the cost of electricity in the LGU
wealth taxes, royalties, fees or charges where such source of energy is located,”
for the eduction in the cost of electricity. the following are the procedures,
mechanics and guidelines to be adopted
1.5 Non-subsidy Scheme is a plan utilizing a by the LGU which may either be a
method or strategy with the end in view barangay, municipality/city or province
of lowering the cost of electricity per entitled to such benefits;
2.1.1 Either one or a combination of 2.2.2.c. Other preferred types of
two basic approaches can be consumer combinations
employed in the implementation
of reduction in cost of electricity, Moreover, the host LGU can utilize along with
subsidy scheme and non-subsidy either of the above options/schemes, the
scheme. following auxiliary options:
2.1.2 In selecting the scheme to be a. With or without ceiling (amount or

adopted, the LGU must consider consumption);
the intended impact that must b. Graduated discount rates (per kWh per
be synchronized with the LGU’s level of consumption) per consumer type.
development plans and shall
depend on the magnitude of the Please refer to Annexes A and B for formulate
national wealth share from taxes, and sample computations.
royalties, fees or charges and the
number of consumer or volume of 2.3 NON-SUBSIDY SCHEME:
power consumed.
The Host LGU can initiate and adopt non-
2.2 SUBSIDY SCHEME subsidy schemes that can lower the cost
of electricity of consumers in the area.
Under this scheme, proceeds from share
in the national wealth will be directly The benefits may take the form of but
utilized to subsidize cost of power used not limited to the reduction of electricity
by consumers of host LGUs. This scheme losses through technical upgrading and
may take the form of the following which rehabilitation of distribution lines, use of
the host LGU may choose from: energy saving devices, et..
2.2.1 Subsidy Per Consumer – an equal The host LGU shall submit its proposal
or pre-determined level or rate of to the National Electrification
subsidy per qualified consumer: Administration (NEA). NEA shall then
submit its findings to DOE for approval.
2.2.1.a All consumer types
2.2.1.b. Residential consumers The said proposal shall indicate the
only strategies to be employed, resources
2.2.1.c. Other preferred types of required and the projected benefits in
consumer combinations terms of reduction in cost of electricity.
such as: commercial/
industrial, public/ 2.4 The host LGU shall, through a resolution
buildings, irrigation/ of its sanggunian body, manifest the
communal water system, scheme/s to be adopted. It may utilize
street lights, etc. different scheme or combination of
schemes each year as it may deem
2.2.2 Subsidy of Power Consumption – necessary or applicable subject to public
amount of subsidy depends on information and consultation.
magnitude of power consumption
of qualified consumers: 2.5 Close coordination between the LGU,
electric franchise holder, the DOE and its
2.2.2.a. All consumer types attached agencies must be maintained in
2.2.2.b Residential consumers order to facilitate subsidy computation
only
and effective implementation of the franchise holder for allocation to qualified
benefits. consumers, incremental service charges to
be imposed by the electric franchise holder
Section 3. PAYMENT OF SUBSIDY to the LGU, and the effectivity and terms of
duration of the MOA.
Payment of subsidy to qualified consumer
shall be effected through the following: When the remittance of the allocated share of
the LGU exceeds the total subsidy extended
a. reimbursement by the LGU directly to for the duration specified in the MOA, the
qualified consumers; electric franchise holder shall revert back the
excess remittance to the specific fund of the
b. through the electric franchise holder concerned host LGU.
which shall directly deduct the amount
of subsidy computed from the qualified In no case shall the total subsidy extended
consumers’ bills to be served. exceed(s) the allocated share of the LGU
national wealth tax, royalty, fee or charge.
In the instance where the LGU opts to course
the payment and extension of subsidy Section 10. EFFECTIVITY
directly through the electric franchise holder
operating within the area, a memorandum of This circular shall take effect immediately.
agreement (MOA) shall be executed between
the LGU and the electric franchise holder. RAFAEL M. ALUNAN III
DILG Secretary
The MOA shall specify, among others, the
scheme adopted by he host LGU, procedures FRANCISCO L. VIRAY
and frequency of remittance of the national DOE Secretary
wealth tax, royalty, fee or charge to the

GUIDELINES AND PROCEDURES FOR THE GRANTING OF FINANCIAL BENEFITS UNDER ENERGY
REGULATIONS NO. 1-94

Pursuant to Energy Regulations No. 1-94 SECTION 1. General Guidelines. – All energy
Implementing Section 5 (i) of Republic Act resource developers and power producers
No. 7638 (Department of Energy Act of 1992), covered by Section 3 of E. R. 1-94 (Scope of
the Department of Energy (DOE) adopts the Application) shall be guided by the following:
following guidelines and procedures for the
granting to the host local government unit (a) The effectivity of the grant of financial
(host LGU) financial benefits established benefits, which shall be equivalent to
under E. R. 1-94, as follows: electrification one centavo per kilowatt-hour (kWh) of
fund; development and livelihood fund; the total electricity sales of the energy-
and reforestation, watershed management, generating facility, shall be on 27 June
health and/or environment enhancement 1994.
fund.


(b) The electrification fund, the development (2) The DOE, through its Financial
and livelihood fund, and the reforestation, Management Services, for and on
watershed management, health and/ behalf of the energy generating
or environment enhancement fund projects/facilities owned and/
shall be kept in separate trust accounts or operated by private entities.
in accordance with a Memorandum of The DOE shall also administer the
Agreement to be entered into by and electrification funds accruing from
between the DOE and the energy resource the NPC, PNOC, and other GOCCs.
developer and/or power producer.
(f) The funds can only be utilized to finance
(c) The financial benefits shall be based projects and work programs duly
on electricity sales proceeds derived endorsed by the host LGU and can only
from the commercial operation of the be defrayed for actual costs authorized
energy generating facility, calculated in under projects and work programs duly
accordance with the power producer’s approved by the DOE through the Energy
regular billing cycle. Industry Administration Bureau (EIAB).

To provide a uniform basis for calculating SEC. 2. Establishment of Trust Accounts. – For
the financial benefits for purposes of purposes of establishing trust accounts for
initially establishing the trust accounts, financial benefits accruing in 1994 and 1995,
the electricity sales proceeds derived the energy resource developer and power
from the nearest full billing month producer shall be guided by the following
shall be applied whenever the period procedures:
of operation constitutes a fraction of
a billing month. Thus, the initial trust (a) Within thirty (30) days after the effectivity
accounts for 1994 shall be reckoned on of this Circular, the power producer shall
the full billing month nearest to 27 June submit to the EIAB separate Electricity
1994, i. e., 25 June – 24 July 1994. Sales and Financial Benefits Report
pertaining to the periods 27 June – 31
(d) Interest earned from the trust accounts December 1994 and 1 January – 30
shall be for the benefit of the trust. September 1995. This report shall
contain the following data:
(e) The administration of the funds shall be
undertaken by any of the following: (1) Actual generation, station service/
own use, system loss, and electricity
(1) the National Power Corporation sales in kilowatt-hours (kWh) for the
(NPC), the Philippine National period;
Oil Company (PNOC), and other
government-owned and controlled (2) Accrued benefits to the host LGU
corporations (GOCCs) that may derived from (1);
be engaged in energy resource
development projects and operation (3) Details of benefits and/or financial
of energy generating facilities, for assistance advanced to the host LGU,
their respective energy generating if any; and
projects/facilities and with respect
to the development & livelihood, (4) Such other information which the
and reforestation, watershed DOE may deem necessary for review
management, health and/or and audit purposes.
environment enhancement funds;
and
(b) In addition to complying with Section 2 energy generating facilities owned
(a), the power producer shall submit a and/or operated by private entities
joint undertaking with the concerned and electrification funds accruing from
agency resource developer or private the NPC, PNOC and other GOCCs shall
sector participant showing their be deposited in trust accounts in the
respective fund contributions in any of name of the Department, as provided
the following cases: in a Memorandum of Agreement to
be executed for the purpose by and
(1) Geothermal resource development between the DOE and such concerned
projects/power plants and hydro energy resource developers and power
development projects/power plants producers.
which are integral to each other
and therefore, the pertinent host (e) Within ten (10) days after the
LGU shall be entitled to one set of establishment of the trust accounts,
benefits. the energy resource developer and the
power producer shall submit to the
(2) Energy-generating projects/facilities FMS copies of the documents as proof
which are implemented/operated of establishment of said trust accounts,
through private sector participation subject to further verification thereof by
via the Build-Operate-Transfer, the FMS.
Rehabilitate-Operate-Lease or other
variants of those private power SEC. 3. Administration of Funds. –
schemes.
(a) For purposes of maintaining the funds in
(c) Review of the Electricity Sales and the respective trust accounts, the energy
Financial Benefits Report shall be made resource developer/power producer
by the Financial Management Services shall henceforth deposit to the trust
(FMS) and Compliance Division of the accounts, on a quarterly basis, financial
DOE, in coordination with the EIAB. benefits accruing from a billing quarter,
i. e., three full billing months within the
(d) Within thirty (30) days after the effectivity given quarter.
of this Circular, the energy resource
developer and the power producer shall The energy resource developer and/or
establish separate trust accounts for the power producer shall make the deposits
electrification fund, the development and not later than thirty (30) days after the
livelihood fund, and the reforestation, given quarter, and shall forthwith submit
watershed management, health and/ the proper documentation thereof to the
or environment enhancement fund FMS.
which shall correspond to the accrued
benefits of the host LGU for the period (b) The mechanism for crediting advances
27 June 1994 – 30 September 1995. The or incurred costs against the financial
trust shall be established in any of the benefits shall be implemented by the
following government depository banks: DOE in accordance with the provisions of
Development Bank of the Philippines; E. R. 1-94. For this purpose, any of the
Philippine National Bank; or Land Bank of following may be undertaken:
the Philippines.
(1) The energy resource developer or
Funds to be administered by the DOE power producer which has advanced
including all funds accruing from benefits and/or financial assistance
to the host LGU may request the DOE
in writing to certify that the grant franchise holder or public service
of said benefits and/or financial cooperative (PSC) established for the
assistance complies with Section purpose, after consultation with the host
5 (i) of Republic Act 7638 and to LGU. Project proposals recommended
credit such benefits against the for implementation by any rural electric
financial benefits required under E. cooperative shall be directly transmitted
R. 1-94. Such request shall include to the National Electrification
the requirements prescribed under Administration (NEA), through its
Annex D hereof. Technical Services Department, for
review and approval. The NEA shall
(2) The energy resource developer or make the appropriate endorsement of
power producer which has incurred approved project proposals to the EIAB
costs to comply with environmental and thereafter, project implementation
standards imposed under DENR shall proceed as prescribed under Section
Administrative Order Nos. 14 and 14A 4 (f) (3) hereof.
and with such other stricter emission,
safety, health or environmental (c) For projects and work programs
standards that may be imposed by on development and livelihood,
any government agency in the future reforestation, watershed management,
may request the DOE in writing to health and/or environment
deduct such costs from the financial enhancement, the energy resource
benefits. Such request shall include developer and power producer shall
the requirements prescribed under submit to the EIAB for approval project
Annex D hereof. proposals, which shall be duly endorsed
by the host LGU through a resolution
(c) Funds disbursement shall be consistent passed by its sanggunian.
with the pertinent provisions of laws,
rules on government spending and Consistent with Sec. 6 (f) of E. R. 1-94,
P. D. 1145 with respect to post-audit review of all proposed work programs on
requirements of the Commission on reforestation, watershed management,
Audit. health and/or environment enhancement
shall be done in consultation and
SEC. 4. Project Implementation. – coordination with the Department of
Environment and Natural Resources
(a) Within sixty (60) days after the effectivity (DENR), the Department of Health,
of this Circular, the energy resource relevant water districts and other
producer and power producer shall, concerned parties. Such work programs
after consultation with appropriate shall be duly endorsed by the local
government agencies, submit to the EIAB DENR officials such as the CENRO for
a list of all beneficiaries entitled to the municipal/barangay projects, the PENRO
financial benefits, which shall comprise for provincial projects and the RED for
all barangays, municipalities, cities and regional projects and/or the watershed
provinces hosting their respective energy reservation manager designated by law
resource and/or energy-generating for the area.
facilities.
(d) The amount of financial benefits accruing
(b) For electrification projects, the to the pertinent fund in any given year
power producer shall coordinate shall be used as basis in the preparation
the development of any missionary of project proposals.
electrification program with the relevant
(e) Any project proposal should be able host LGU may be effected through
to demonstrate the potential for amendments in the original MOA.
enhancing progress, the provision of
a decent source of livelihood, or the (3) For electrification projects, a
upliftment of the community’s general Tripartite Agreement shall be forged
condition of living. Provided, That, between the DOE, NEA and the
the basic infrastructure component concerned LGU to effect project
of any such proposal shall constitute implementation. The DOE shall then
impact projects directly associated make the necessary funds allocation
with electrification, development and and shall forthwith release the
livelihood, and reforestation, watershed project funds directly to the DOE
management, health and/or environment which shall be responsible for funds
enhancement. Project proposals shall disbursement.
include the requirements prescribed
under Annexes A, B and C hereof. SEC. 5. Grant of Financial Benefits During Pre-
Operation Stage. –
(f) Evaluation of project proposals shall be
completed by the EIAB within thirty (30) (a) During construction of pre-operation
days from receipt of a complete proposal. stage, the energy resource developer
Once the proposal is deemed beneficial and the power producer may advance
to the host LGU, project implementation benefits and/or financial assistance to
shall proceed in any of the following the host LGU subject to the procedures
manner: on project implementation set forth in
this Circular.
(1) For projects which will utilize NPC-
PNOC-, or GOCC-administered funds, (b) Upon commencement of the energy
the DOE shall issue a Notice to Proceed generating facility’s commercial
authorizing the implementation of operation, the power producer shall
the project. Project implementation forthwith advise the EIAB in writing.
by NPC and PNOC shall be governed Accordingly, the energy resource
by procedures consistent with the developer and/or power producer shall
guidelines for DOE-administered be subject to the requirements for
funds under Sec. 4 (f) (2). The NPC establishing and maintaining the trust
and PNOC, however, shall be directly accounts set forth in this Circular.
responsible for the disbursement of
the pertinent fund. (c) The trust accounts shall be established
not later than thirty (30) days after the
(2) For projects which will utilize DOE- initial full billing quarter of commercial
administered funds, Memoranda operations.
of Agreement (MOA) to affect
project implementation and funds SEC. 6. Review and Audit. –
commitment shall be forged
between the DOE and the concerned (a) For review and audit purposes, a detailed
host LGU. The DOE shall then make statement of the sources and uses of
the necessary funds allocation and funds shall be submitted to the DOE by all
shall forthwith release the project energy resource developers and power
funds directly to the concerned host producers within thirty (30) days after
LGU of relevant project implementor. the end of every semester in any given
Additional projects that may be year.
undertaken by the concerned
In the case of projects utilizing DOE- resource developer and power producer
administered funds, concerned host LGUs or within sixty (60) days after the conduct of
project implementors authorized to directly the audit.
implement projects and DOE (in the case of
electrification projects) shall likewise render a This Circular shall take effect fifteen (15)
report on their uses of funds every six months days after publication in two (2) national
during the entire implementation period of newspapers of general circulation.
the project.
November 8, 1995.
(b) The FMS shall undertake the audit within
a six (6) month period following the end FRANCISCO L. VIRAY
of every semester and shall render a Secretary
report of its audit findings to the energy

PROVIDING ADDITIONAL GUIDELINES FOR THE GRANTING OF BENEFITS UNDER ENERGY
REGULATIONS NO. 1-94

SECTION 1. Applicability of E.R. 1-94. – To to the NPC, the NPC shall fully shoulder
ensure a uniform applicability of E.R. 1-94, the the one centavo which shall constitute
DOE hereby directs the following entities to part of its cost of purchased power from
provide the benefits required under E.R. 1-94 the concerned IPP.
and to establish trust accounts mandated
under Department Circular No. 95-11-009: (d) For energy-generating facilities owned
and/or operated by an IPP and involving
(a) For energy-generating facilities owned the sale of the generated electricity to
and operated by the National Power an electric distribution utility or rural
Corporation (NPC), the NPC shall fully electric cooperative (REC), the IPP shall
shoulder the one centavo which shall fully shoulder the one centavo which
constitute part of its generation cost. shall constitute part of its cost of power
sold to the concerned utility or REC.
(b) For geothermal resource development
projects and power plants, the energy The NPC, Philippine National Oil Company
resource developer and power producer IPPs, and other concerned energy resource
shall equally contribute one-half centavo, developers and/or power producers shall
which shall constitute part of the cost of accordingly adjust their steam costs, rates
geothermal steam. of purchase or sales, and where necessary,
financial accounting systems, as a result of
(c) For energy-generating facilities owned the foregoing requirement.
and/or operated by an independent
power producer (IPP) under such private Any corresponding impact on existing
power schemes as Build-Operate- contractual rates of power purchase or sale
Transfer, Energy Conversion Agreement, shall be determined by the concerned energy
Rehabilitate-Operate-Lease, etc., and resource developer and/or power producer
involving sale of the generated electricity and submitted to the Energy Regulatory
Board for review and approval. Renewable energy projects proposals shall be
referred by the Energy Industry Administration
Accordingly, all concerned energy resource Bureau to the Energy Utilization Management
developers and power producers shall cause Bureau of the DOE for evaluation. Project
the establishment of trust accounts for the implementation shall proceed in accordance
period ending July 31, 1996 within thirty with Section 4 (f) (1) and Section 4 (f) (2) of
(30) days after the effectivity of this Circular, Department Circular 95-11-009.
in accordance with the guidelines and
procedures under Department Circular No. SEC. 4. For the proper determination of the
95-11-009. proportion of benefits to be received by
one host LGU vis-à-vis another host LGU in
The administration of trust accounts in the event the energy-generating facility or
the case of all energy-generating facilities the energy resource development project
classified under shall Part I (c) hereof shall be overlaps more than one host LGU, the DOE
undertaken by the DOE, through its Financial shall adopt the provision of Section 292 of
Management Services. the Local Government Code which prescribes
that “where the natural resources are located
SEC. 2. Granting of Benefits from Power in two (2) or more provinces, or in two (2)
Barges. – To rationalize the granting of more component cities or municipalities or
benefits from power barges which operations in two (2) or more barangays, their respective
may entail transfer or dispatch to different shares shall be computed on the basis of: (1)
locations over certain periods, power barges Population – Seventy percent (70%); and (2)
moored at any location for less than six (6) Land Area – Thirty percent (30%).”
months shall be exempted from providing
the benefits required under E.R. 1-94. For SEC. 5. Determination of Highly Urbanized
this purpose, the concerned power producer Cities. – For the proper determination of
shall submit to the DOE copies of relevant energy resource development projects and
documents to support any request for such energy-generating facilities located in highly
exemption. urbanized cities and thereby exempted from
providing the benefits pursuant to Section
SEC. 3. Utilization of the Electrification Fund. 3 of E.R. 1-94, the DOE shall adopt the list
– In cases where grid-type electrification is highly urbanized cities classified by the
deemed unviable for particular host LGUs Bureau of Local Government Supervision
or host regions as determined by the DOE, of the Department of Interior and Local
the funds intended for the purpose may be Government.
ordered redirected by the DOE for appropriate
energy projects that can provide immediate For immediate implementation.
electrification to such host LGU or host region,
through the adaptation of renewable energy August 8, 1996.
technologies with electricity-generating
potentials like solar energy, mini-hydro, FRANCISCO L. VIRAY
biomass and such other similar projects. Secretary


SETTING ASIDE PORTION OF THE TRUST ACCOUNTS ESTABLISHED UNDER ENERGY REGULATIONS
NO. 1-94, AS AMENDED, IN AMOUNTS WHICH ARE REASONABLE TO MEET AND COVER NECESSARY
EXPENDITURES NEEDED OR TO BE INCURRED IN THE DISCHARGE BY THE DEPARTMENT OF ENERGY
(DOE) OF ITS FUNCTIONS AS ADMINISTRATOR OF SAID FUNDS
WHEREAS, Energy Regulations 1-94, as said funds.

amended by Department Circular No. 95-11-
009, dated November 8, 1995 and Energy NOW, THEREFORE, the applicable provisions
Regulations No. 1-94-A dated 31 July 1996, of Department Circular No. 95-11-009,
established Trust Accounts to be administered dated November 8, 1995, amending Energy
by the DOE for the electrification fund, the Regulations No. 1-94, are hereby amended,
development and livelihood fund and the as follows:
reforestation, watershed management,
health and/or environmental enhancement SECTION 1. Section 1 (f) of Department
fund for the benefit of local government units Circular No. 95-11-009, dated November 8,
(LGUs) which are hosts to energy resources 1995 is hereby amended to read as follows:
and/or energy generating facilities;
“(f) The funds can only be utilized to finance
WHEREAS, the Trust Accounts consist of the projects and work programs duly endorsed
following portions of the trust electricity sales by the host LGU and can only be defrayed
of the power producer: for actual costs under projects and work
programs duly approved by the DOE through
(a) 25% of one centavo (P 0.0025) per the Energy Industry Administration Bureau
kilowatt hour for electrification fund; (EIAB). However, the DOE shall set aside
portions from the interest earnings of
(b) 25% of one centavo (P 0.0025) per said funds in sufficient amounts which are
kilowatt hour for development and reasonable and necessary in the discharge
livelihood fund; and of its functions as administrator of said Trust
Accounts.”
(c) 50% of one centavo (P 0.005) per kilowatt
hour for reforestation, watershed SEC. 2. A new Section 1 (g) is hereby
management, health and/or environment incorporated in Department Circular No. 95-
enhancement fund; 11-009, dated November 8, 1995, to read as
follows:
WHEREAS, to enable the DOE to discharge
its functions as administrator of said Trust “(g) The cost of administration of the
Accounts in a more responsive and effective aforesaid Trust Accounts in connection
manner, it is necessary to set aside portions with the processing of the projects in
of the above-mentioned funds in sufficient electrification, livelihood and development
amounts, to be determined by the Energy and reforestation, watershed management,
Industry Administration Bureau (EIAB) and health and environment enhancement shall
approved by the DOE Executive Committee include all expenditures in an annual line item
annually, which are reasonable to meet and budget prepared by the EIAB and approved
cover necessary expenditures to be incurred by the DOE Executive Committee.”
in connection with DOE’s administration of

SEC. 3. All Department Circulars, Orders, publication in a newspaper of general
Memoranda or other issuances thereof circulation.
which are inconsistent with this Circular are
hereby superseded, modified or amended November 19, 1999
accordingly.
MARIO V. TIAOQUI
SEC. 4. This Department Circular shall take Secretary
effect fifteen (15) days after its complete
REPUBLIC OF THE PHILIPPINES

COMMISSION ON AUDIT
Commonwealth Avenue, Quezon City, Philippines
COA DECISION No. 2002-240
RE: Petition for Review of the decision of the Director, National Government Audit
Office I, directing the treatment of trust receipt interest income as accruing to the
General Fund for deposit to the Bureau of the Treasury
PREFATORY STATEMENT Joint Department of Finance-Department

of Budget Commission on Audit Circular No.
This is a Petition for Review of NGAO I Decision 9-81, Section 5 of the General Appropriations
No. 2002-007 dated February 22, 2002, which Act of 1998 and Section 65 of Presidential
directed the Department of Energy (DOE) to Decree No. 1445 (State Audit Code of the
recognize as income interest earned from Philippines).
trust deposits collected from energy source
developer or owner of generating facilities, It appears that the Trust Fund was created
record the same in the books of accounts pursuant to Section 5 (i) of Republic Act No.
and remit the proceeds to the Bureau of the 7638, the DOE Charter, which provides as
Treasury (BoT) pursuant to existing budget, follows:
accounting and auditing rules and regulations.
“Sec. 5. Powers and Functions – The
ANTECEDENT FACTS Department shall have the following
powers and functions:
Records disclose that on January 13, 1999,
the Auditor, DOE issued Audit Observation “xxx
Memorandum (AOM) No. 99-01 for the
failure of the agency to recognize as income “ (i) Devise ways and means of
the interest earned from the Trust Receipts giving direct benefit to the province,
invested/ deposited with various financial city or municipality, especially the
institutions amounting to P 52,932,561.10 community and people affected, and
as of November 30, 1998. Likewise, the equitable preferential benefit to the
agency failed to remit the said interest to region that hosts the energy resource
the BoT as required under Section 5.1.2 of and/or the energy-facility x x x”

and by Energy Regulation No. 1-94 issued on Moreover, since R.A. No. 7638 is a special
May 24, 1994 which mandated the energy law whereas P.D. No. 1445 is a general law,
resource developer or owner of generating the provision of the former allowing the
facilities to set aside one-centavo per kilowatt Department to devise ways and means to
hour on electricity sales as benefits to be give direct benefit to the host LGUs should
allocated to the host local government units prevail over that of the latter. Besides,
(LGUs) for electrification, development the Trust is deemed owned by the Agency
and livelihood, reforestation, watershed which, pursuant to Item 2.2.4 of Joint DOF-
management, health and/or environment DBM-COA Circular No. 1-97 dated January
enhancement. Further, Department Circular 2, 1997, is exempted from being transferred
No 95-11-009 dated November 8, 1995 to the National Treasury, it follows that the
expressly provided that interest earned from accessory interest should also be owned by
the trust accounts shall be for the benefit the Agency.
of the Trust. The scheme was devised in
a summit meeting participated by various Aggrieved by the NGAO I decision, Petitioner
government and private sectors where the in the instant Petition for Review reiterated
parties agreed to the propositions later the view that the phrase “unless otherwise
embodied in the above issuances. provided by law” in both Joint Circular No.
9-81 and P.D. No 1445 is significant in that it
The then Secretary, DOE, explained that shows that the recording of any income or
Section 65 of P.D. No 1445 admits an exception interest earnings as income and remittance of
to the general rule that income shall accrue to the same to the BoT are not absolute and are
the General fund by providing thus: subject to exceptions as may be provided by
law. Such law is the above-cited provision of
“Sec. 65. – Accrual of income to Section 5 (i) of R.A. No. 7638 as implemented
unappropriated surplus of the by the issuances of the DOE on the matter.
General Fund. (1) Unless otherwise It cited the Supreme Court discussion on
specifically provided by law, all the nature of a trust fund in the case of
income accruing to the agencies Government vs. China banking Corporation,
by virtue of the provisions of law, 54 Phil. 845, as follows:
orders and regulations, shall be
deposited in the National Treasury or “While it is true that the Postal
in any duly authorized government Savings Bank is a division of the
depository, and shall accrue to Department of Commerce and
the unappropriated surplus of the Communications of the Philippine
General Fund of the Government. Government, and although the
board of directors of said bank is
(2) Amounts received in trust and made up of government officials,
from business-type activities of still, property acquired by said bank
government may be separately is its own particular property, and
recorded and disbursed in its reserve fund is not revenue fund
accordance with such rules and in the sense of Section 614 of the
regulations as may be determined by Revised Administrative Code but a
a Permanent Committee composed trust fund to be used for no other
of the Secretary (Minister) of Finance purpose than to meet deficits in
as Chairman, and the Commissioner those years after its establishment in
of the Budget and the Chairman, which earnings of the Bank are not
Commission on Audit, as members.” sufficient to pay the expenses of the
Bank.”

The Petitioner likewise asserted the rationale There is no question that the Trust involve
for the creation of the Trust which are to public funds as it officially came into the
recognize and provide recompense for the possession of the DOE but the character
contributions made by the pertinent LGUs of being public does not ipso facto make
in hosting within their respective territorial the Trust subject to the general laws on the
jurisdictions the energy source and/or treatment and disposition of the fund by the
energy-generating facility through which the government. The fact is that the fund was
rest of the country is energized and to lessen raised not as a form of exaction by law but
the conflict of rights among host LGUs, the by voluntary contribution by private entities
community and people affected, the energy which entrusted the same to the Department
resource developers or power producers for the specific purpose of benefiting the LGUs.
and the appropriate agencies of the national As correctly explained by the Petitioner, the
government and to promote harmony and requirements of accounting and remittance
cooperation among them. Therefore, the of income of trust funds are not absolute but
holding of the Trust and its interest for the admits certain exception as when the law
benefit of the LGUs concerned is within the so provides. That law, in the instant case, is
spirit and intent of the law. Section 5 (i) of R. A. No. 7638 which clearly
authorizes the DOE to “devise ways and
ISSUE means of giving direct benefit” to the LGUs.
The administrative issuances of that Agency
Whether or not the earnings of the Trust which partakes the nature of “little laws” to
contributed by owners of energy source and implement the intent of the law making body
energy-generating facility are excluded from of giving direct and immediate benefit to the
the requirement of accrual to the General remote areas needing electrification for the
Fund and remittance to the Bureau of the good not only of the area benefited but for
Treasury. the whole country as well, albeit indirectly, is
a reasonable exercise of its delegated quasi-
DISCUSSION legislative function.
The phrase “trust funds” is defined in section This intent of Congress is all the more
628 of the Revised Administrative Code as that manifest when it enacted the Electric Power
which have officially come into the possession Industry Reform Act of 2000 (R.A. 9136) which
of the Government or of a government officer substantially incorporated the beneficial
as trustee, agent or administrator, or which provision of the contents of the DOE
have been received as a guaranty for the circulars. More so as the law’s implementing
fulfillment of some obligation. Thus, in the rules and regulations approved by the Joint
instant case, the Trust came into existence Congressional Power Commission provided in
by virtue of contributions of private entities Section 4 (b), Rule 29 that:
for the benefit of LGUs for the purpose of
recompensing them for hosting within their “All interest earnings from
respective territorial jurisdictions the energy Electrification Fund (EF),
source or facility through which the rest of the Development and Livelihood Fund
country is energized and to lessen the conflict (DLF), and Reforestation, Watershed
of rights among those concerned. It was not Management, Health and/or
a creation of law but a mutual agreement Environment Enhancement Fund
between the DOE and the private entity (RWMHEEF) shall be set aside into
owners in compliance with the mandate to one trust account to be utilized for
the DOE to devise ways and means to benefit the electrification projects of the
the LGUs involved. communities in the following order

of priority: not be used as a precedent in the cases of
agencies administering trust funds but each
Direct host barangays and host case shall be treated separately.
municipality/ies or city/ies with
sufficient accrued DF; xxx”
GUILLERMO N. CARAGUE
COMMISSION’S RULING Chairman
Premises considered, the instant petition is RAUL C. FLORES

granted. The DOE is hereby allowed to directly Commissioner
apply the Trust and its income for the purpose
for which it was created. In view, however, EMMANUEL M. DALMAN
of the unique and special circumstances Commissioner
obtaining in the instant case, the same shall
PROVIDING REVISED RULES AND PROCEDURES TO IMPLEMENT ELECTRIFICATION PROGRAM

FUNDED THROUGH ENERGY REGULATIONS NO. 1-94, IMPLEMENTING SECTION 5 (i) OF REPUBLIC
ACT NO. 7638, OTHERWISE KNOWN AS THE DEPARTMENT OF ENERGY ACT

WHEREAS, Energy Regulations (E.R.) No. embodied in its Rural Electrification Program
1-94 promulgated by the Department on 24 (REP);
May 1994, prescribed the provision of direct
benefits to pertinent Local Government Units WHEREAS, in the interest of exigency of
(LGUs) hosting energy generating facilities public service and to further accelerate
and/or energy resource development projects the implementation of the REP to ensure
within their jurisdiction pursuant to Section 5 the implementation and completion of the
(i) of Republic Act (R.A.) No. 7638; project on time, there is an urgent need to
institute summary procedures in the approval
WHEREAS, Department Circular (D.C.) No. and subsequent release of the electrification
95-11-009 and D.C. 96-08-009, issued by fund to the franchised distribution utility or
the Department on 08 November 1995 and project implementor, as the case may be;
09 August 1996, respectively, prescribed the
guidelines and procedures for granting of WHEREFORE, premises considered, the
financial benefits required under E.R. 1-94; Department hereby adopts and promulgates
the following summary procedures in
WHEREAS, D.C. No. 2000-03-003 issued on the utilization and implementation of
17 March 2000, amended certain provisions electrification projects funded under E.R.
of E.R. 1-94 and its attendant rules and 1-94:
procedures;
SECTION 1. Evaluation and Approval of
WHEREAS, pursuant to the policy of the Electrification Projects. –
state to ensure total electrification of the
country, the Department seeks to achieve full (a) Priority shall be given to unenergized
electrification of all barangays by year 2004 as areas of the following:

(i) Official Resettlement Areas; for the franchised electric distribution
(ii) Host Barangays; and utility to comply with the submission,
(iii) Host Municipalities/Host Cities. among others, cost estimates, proposed
work program, target date of project
(b) After electrification has reached the completion;
municipal or city level, the electrification
fund of each energy generating facility in (b) The Department shall make the necessary
the same province or region, as the case fund allocation and forthwith release
maybe, shall be combined to finance the funds to the franchised distribution
unenergized areas in the host province or utility or project implementor within
host region, as the case may be; fifteen (15) days upon accomplishment
of the MOA;
(c) The National Electrification
Administration (NEA) shall provide (c) For projects to be undertaken by
support to the Department in the contract, initial release of fund shall be
identification of electrification projects equivalent to fifteen percent (15%) of the
including submission by the concerned total project cost. Subsequent release of
franchised distribution utility of the fund balance shall be based on the result
staking sheets or single line diagram, and of the qualified lowest bid cost;
cost estimates;
(d) For projects to be undertaken by
(d) All concerned franchised distribution administration, total project cost shall
utilities shall submit to the Department be released upon accomplishment of the
the corresponding staking sheets or MOA;
single line diagram detailing the design of
the project including the estimated cost (e) The NEA or other government agencies
estimates and completion date of the shall ensure compliance by the franchised
project; and distribution utility or project implementor
to the provisions of the MOA to facilitate
(e) The Department, with the assistance of post-audit by the Department upon
the NEA, shall evaluate initial documents completion of the projects;
submitted by the franchised distribution
utilities and the reasonableness of the (f) All electrification projects shall be
cost estimates. completed or energized consistent on the
time or date specified in the MOA;
SEC. 2. Release of Funds and Project
Implementation. – (g) All electrification projects shall be
undertaken in a least-cost manner. The
(a) A Memorandum of Agreement (MOA) concerned franchised distribution utility
shall be forged among the Department, or project implementor may either
relevant franchised distribution utility or adopt the conventional line design or
project implementor, power producer utilize indigenous and renewable energy
and/or energy resource developer, sources to energize the area; and
NEA and the concerned LGU/s to effect
the implementation of the project/s. (h) In case where the electrification project
In cases where the electrification is implemented by entity other than the
project lacks necessary information relevant franchised distribution utility,
and documentation, the MOA shall the project implementor shall turn-over
stipulate specific time frame or date said project to the relevant franchised

distribution utility for operation and (vi) Availability of electrification fund
maintenance. from the relevant energy generating
facility.
SEC. 3. Post Project Implementation. –
Provided, however, That the amount to be
(a) The franchised distribution utility or recovered shall not exceed 20 percent (20%)
project implementor shall, in writing, of the total estimated project cost as specified
inform the Department of the project in the MOA.
completion along with the submission
of the pertinent documents, such as but (c) The Department shall conduct audit
not limited to, as-built staking sheets, of the expenses incurred as well as
documents detailing costs incurred and technical inspection of the facilities
the number of potential households installed. Accordingly, the financial
connected or to be connected, and and technical teams of the Department
completion date of the project; shall prepare their respective reports
detailing their respective findings of the
(b) In the event that the franchised project completed. The as-built staking
distribution utility or project implementor sheets and documents submitted by the
incurred additional cost in implementing franchised distribution utility shall serve
the project, recovery shall be allowed as reference or initial basis for audit.
subject to the following:
SEC. 4. Other Provisions. –
(i) The additional or extra works and/
or change order are necessary to (a) This Circular shall be amended, replaced
complete the project; or repealed in due time as may be
deemed necessary by the Department
(ii) Submission of Certificate of to rationalize the implementation of the
Completion and Certificate of REP of the Department.
Acceptance from the franchised
distribution utility if the project (b) This Circular shall only apply to
shall be undertaken by contract. If barangay electrification projects of the
the project shall be undertaken by Department, utilizing electrification fund
the administration of franchised and interest earnings under E.R. 1-94.
distribution utility, a Certificate of
Completion is sufficient; (c) All previous pertinent orders, resolutions
or memorandum circulars inconsistent
(iii) Audit report detailing the additional herewith are hereby superseded,
or extra works done; modified or amended accordingly.

(iv) All provisions in the MOA have been (d) This Circular shall take effect immediately.
strictly complied with, in accordance
with the commitment of the
franchised distribution utility; Fort Bonifacio, Taguig, Metro Manila, 02
October 2000.
(v) Electrification project is completed
within the specified time frame or
date specified in the MOA; and MARIO V. TIAOQUI
Secretary


RESTRUCTURING PROGRAM FOR ELECTRIC COOPERATIVES

WHEREAS, the Congress of the Philippines outstanding financial obligations of ECs shall
enacted Republic Act No. 9136, otherwise be assumed by the Power Sector Assets and
known as the “Electric Power Industry Liabilities Management Corporation (PSALM)
Reform Act of 2001” (EPIRA), for the purpose in accordance with the program approved by
of restructuring the electric power industry, the President of the Philippines.
including the restructuring of electric
cooperatives (ECs); WHEREAS, Rule 31 of the Implementing Rules
and Regulations of EPIRA likewise defines the
WHEREAS, Section 60 of EPIRA provides: outstanding financial obligations which shall
be assumed by PSALM as those incurred by
“Sec. 60. Debts of Electric ECs “for the purpose of financing the Rural
Cooperatives. – Upon the effectivity Electrification Program”;
of this Act, all outstanding financial
obligations of electric cooperatives to WHEREAS, the assumption by PSALM of such
NEA and other government agencies outstanding financial obligations of ECs shall
incurred for the purpose of financing result in the reduction in the rates of ECs
the rural electrification program commensurate with the resulting savings due
shall be assumed by the PSALM to the removal of the amortization payment
Corporation in accordance with the on said loans;
program approved by the President
of the Philippines within one (1) year WHEREAS, Section 58 of EPIRA mandates
from the effectivity of this Act which the National Electrification Administration
shall be implemented and completed (NEA) to strengthen the technical capability
within three (3) years from the and financial viability of rural ECs as electric
effectivity of this Act. The ERC shall utilities, and to prepare said ECs to operate
ensure a reduction in the rates of and compete in the deregulated electricity
electric cooperatives commensurate market, specifically in an environment of
with the resulting savings due to open access and retail wheeling;
the removal of the amortization
payments of their loans. Within five WHEREAS, the assumption by PSALM of
(5) years from the condonation of the the outstanding financial obligations of ECs
debt, any electric cooperative which incurred for the purpose of financing the Rural
shall transfer ownership or control Electrification Program entails substantial
of its assets, franchise or operations government support that must come
shall repay PSALM Corp. the total hand in hand with meaningful and lasting
debts including accrued interest reforms, both mandated and self imposed,
thereon.” (Underscoring supplied); among the ECs, for the purpose of achieving
reliable, secure and cheaper electricity for all
WHEREAS, Rule 31 of the Implementing Rules consumers, particularly in the rural areas, in
and Regulations of EPIRA, as approved by line with the declared policies in EPIRA;
the Joint Congressional Power Commission
(JCPC) and promulgated by the Department WHEREAS, DOE, Department of Finance
of Energy (DOE), reiterates that said (DOF), NEA and PSALM, have recommended a
program for the restructuring of ECs through by JCPC and promulgated by DOE, defines
the assumption by PSALM of the outstanding “Financing for Rural Electrification” as
financial obligations of ECs incurred for the referring to loans and grants extended to ECs,
purpose of financing the Rural Electrification for the construction or acquisition, operation
Program, with a view to reducing the spiraling and maintenance of distribution, generation,
cost of electricity (hereinafter referred to as and subtransmission facilities for the purpose
the “Program”); of supplying electric service,” and those
loans for the restoration, upgrading and
NOW, THEREFORE, I, GLORIA MACAPAGAL- expansion of such facilities, in areas which
ARROYO, President of the Philippines, by are considered rural at the time of the grant
virtue of the powers vested in me by law and of such loans (hereinafter referred to as ‘Rural
upon the recommendation of DOE, DOF, NEA Electrification Loans”).
and PSALM, do hereby order:
Thus, the Program shall comprise the
SECTION 1. Declaration of Policy. – The following:
Program adheres to the following declared
policies in EPIRA: (a) Financial, institutional, technical and
managerial restructuring of ECs, pursuant
(a) To ensure and accelerate the total to Section 58 of EPIRA;
electrification of the country;
(b) Assumption by PSALM of Rural
(b) To ensure the quality, reliability, security Electrification Loans, pursuant to Section
and affordability of the supply of electric 60 of EPIRA;
power;
(c) Amortization of payments to NEA and/or
(c) To ensure transparent and reasonable other government creditor agencies for
prices of electricity in a regime of free Rural Electrification Loans assumed by
and fair competition and full public PSALM, pursuant to Section 60 of EPIRA;
accountability to achieve greater and
operational and economic efficiency and
ensure the competitiveness of Philippine (d) Reorganization of NEA to enable it to
products in the global market; perform its additional mandates under
Section 58 of EPIRA, and in accordance
(d) To encourage the efficient use of energy with Section 5 (a) (5) of Presidential
and other modalities of demand side Decree No. 269, as amended by
management; and Presidential Decree No. 1645.

(e) To protect the public interest as it is SEC. 3. NEA Reorganization Plan. – In order
affected by the rates and services of to better achieve the objectives of EPIRA and
electric utilities and other providers of to suit the organizational staffing pattern
electric power. of NEA to its additional mandates therein,
NEA shall submit, within thirty (30) calendar
SEC. 2. Coverage. – As specified under days from the effectivity of this Executive
Section 60 of EPIRA, the Program for PSALM to Order, a reorganization plan containing NEA’s
assume the outstanding financial obligations redefined institutional, technical and financial
incurred by ECs covers only those obligations functions for the approval of DOE and the
incurred for the purpose of financing the Rural Department of Budget and Management
Electrification Program. The Implementing (DBM).
Rules and Regulations of EPIRA, as approved

Upon approval of NEA’s reorganization plan, the assumption by PSALM of the Rural
DBM shall release the necessary funds to Electrification Loan/s shall take effect
implement the reorganization plan. only upon such ERC approval, given that
all other terms and conditions stated
DOE shall monitor the implementation of herein have been complied with.
NEA’s reorganization plan and shall submit a
report thereon to the Office of the President. (d) Each EC must be current and continue
to be current in the payment of its
SEC. 4. EC Restructuring. – Within thirty obligations to the National Power
(30) calendar days from the effectivity of this Corporation (NPC) to be eligible for
Executive Order, NEA shall likewise submit to the assumption by PSALM of its Rural
DOE a plan of action: (a) to implement and Electrification Loan/s. In the event that
comply with Section 58 of EPIRA, specifically an EC is not current in the payment of
to prepare ECs to operate and compete under its obligations to NPC, such EC must first
the deregulated electricity market, and to submit to NEA a duly executed agreement
strengthen the technical and managerial with NPC, containing a sustainable
capability and financial viability of rural ECs; payment arrangement acceptable to
and (b) to ensure full compliance with Section NPC, before such EC may be eligible for
5 of this Executive Order. the assumption by PSALM of its Rural
Electrification Loan/s.
SEC. 5. Assumption of Rural Electrification
Loans. – To ensure that the implementation of (e) Each EC shall at all times comply with
the Program is in accordance with law which all NEA policies governing the ECs’
requires that only Rural Electrification Loans relationship with NEA, pursuant to
shall be assumed by PSALM, and to further Presidential Decree No. 269, as amended
protect consumer welfare, the assumption of by Presidential Decree No. 1645, and
Rural Electrification Loans shall be effective its implementing guidelines, rules and
upon compliance with the following terms regulations.
and conditions:
(f) Each EC shall cooperate with NEA in
(a) Each Rural Electrification Loan must order for NEA to effectively prepare them
be (a) duly recorded in the books of for operating and competing under the
NEA and/or the corresponding creditor deregulated electricity market within five
government agencies; (b) validated (5) years from the effectivity of EPIRA,
by the Commission on Audit; and (c) specifically in an environment of open
confirmed by the concerned EC as due access and retail wheeling, as envisioned
and outstanding. and mandated under Section 58 of EPIRA.

(b) Each Rural Electrification Loan shall be (g) Within thirty (30) calendar days from
audited for verification purposes by the effectivity of this Executive Order,
PSALM, in accordance with generally the NEA Board shall issue guidelines for
accepted accounting and auditing the submission by ECs of a Performance
practices. Improvement Program (PIP) and/or a
Rehabilitation and Efficiency Plan (REP).
(c) ERC shall have approved the reduction
in the ECs’ rates commensurate with Consistent with Section 10 of Presidential
the resulting savings due to the removal Decree No. 269, as amended by
of the amortization payments on the Presidential Decree No. 1645, said
Rural Electrification Loan/s. At all times, guidelines shall include preventive and/

or disciplinary measures, as may be proper, to undertake the payment of the
warranted, prior to the assumption by assumed Rural Electrification Loans through
PSALM of the Rural Electrification Loan/s an amortization schedule to be agreed upon
of the concerned EC. between PSALM on the one hand, and NEA
or other creditor government agencies, on
The PIP and/or REP shall cover institutional, the other. Where necessary, such contracts
technical, financial and managerial and/or agreements may include mutual
reforms, including financial restructuring, stipulations on the modification and/
needed to achieve prescribed levels of or amendments of existing contracts of
efficiency, including but not limited to, mortgage and other security between ECs and
system losses, collections, electric and NEA or other creditor government agencies.
customer service, cost control, tariff rate Provided, however, That any such contracts
competitiveness, and adequacy in capital of mortgage and other security with respect
and/or financing structure. The PIP and/ to the Rural Electrification Loans assumed by
or REP shall provide for specific yearly PSALM shall not be released by NEA and/or
targets and shall cover at least the five (5) other creditor government agencies without
year period prescribed under Section 60 the written consent of PSALM.
of EPIRA.
SEC. 8. Revocation. – The assumption of
(h) Within thirty (30) calendar days from PSALM of the Rural Electrification Loan/s of an
the issuance of such PIP/REP guidelines, EC shall be revoked for failure to continually
each EC shall submit its PIP and/or REP comply with Section 5 of this Executive Order
for NEA’s approval. NEA shall approve or or if within five (5) years from the assumption
disapprove the PIP and/or REP of each by PSALM of the Rural Electrification Loan/s,
electric cooperative within the period an EC transfers ownership or control of its
prescribed in its guidelines. assets, franchise or operations, as provided
under Section 60 of EPIRA.
SEC. 6. Reduction in EC Rates. – Pursuant to
Section 60 of EPIRA, the ERC shall ensure a Upon revocation, such EC must repay PSALM
reduction in the rates of ECs commensurate the total Rural Electrification Loan/s, including
with the savings due to the removal of interest thereon, assumed by PSALM:
the amortization payments on their Rural Provided, however, That with the consent of
Electrification Loan/s assumed by PSALM NEA, an EC may enter into loan or financing
pursuant to this Executive Order. For this agreements to allow flexibility in sourcing
purpose, NEA shall assist ECs in their rate funds and improvement of management
formulation and application to ERC. system for needed rehabilitation and
modernization programs: Provided, further,
SEC. 7. Assumption and Payment by PSALM That such loan or financing agreements shall
of Rural Electrification Loans. – Pursuant to not involve any permanent transfer or control
Section 60 of EPIRA, PSALM shall assume all of the assets, franchise and operations of
Rural Electrification Loans upon compliance such EC: Provided, finally, That DOE and NEA
by the concerned EC with Section 5 of this shall jointly issue the necessary guidelines
Executive Order, and thereupon, such EC to protect the member-consumers of ECs in
shall cease to be a debtor of NEA or of other situations involving such loan or financing
creditor government agencies. agreements.

Thereafter, PSALM and NEA or other creditor SEC. 9. Separability Clause. – In the event that
government agencies shall enter into any of the provisions of this Executive Order
contracts and/or agreements, necessary and is declared unconstitutional with finality by a

court of competent jurisdiction, the validity from the date of its publication in at least two
of the other provisions shall not be affected (2) newspapers of general circulation.
by such declaration.
SEC. 10. Effectivity. – This Executive Order August, in the year of our Lord, Two Thousand
shall take effect on the fifteenth (15th) day and Two.


PROMOTING INVESTMENT MANAGEMENT CONTRACTS AS ONE MEASURE IN EFFECTING GREATER
PRIVATE SECTOR PARTICIPATION IN THE MANAGEMENT AND OPERATION OF RURAL ELECTRIC
COOPERATIVES PURSUANT TO SECTION 37 OF REPUBLIC ACT NO. 9136 AND ITS IMPLEMENTING

WHEREAS, under Section 2 of the Republic WHEREAS, pursuant to Section 43 of EPIRA,

Act 9136, otherwise known as the “Electric the Energy Regulatory Commission (ERC) shall,
Power Industry Reform Act of 2001” or inter alia, promote competition, encourage
“EPIRA,” it is declared policy of the State to: market development, and ensure customer
choice in the restructured electricity industry;
(i) ensure and accelerate the total
electrification of the country; WHEREAS, pursuant to Section 58 (b) of
EPIRA and Section 3, Rule 3 of EPIRA-IRR,
(ii) ensure the quality, reliability, security the National Electrification Administration
and affordability of the supply of electric (NEA) is mandated to develop and implement
power; and programs to strengthen the technical
capability and financial viability of rural
(iii) enhance the inflow of private capital electric cooperatives;
and broaden the base of the power
generation, transmission and distribution NOW, THEREFORE, FOR AND IN
sectors. CONSIDERATION OF THE FOREGOING
PREMISES, the DOE hereby promulgates
WHEREAS, pursuant to Section 37 (e) (i) the following guidelines to promote private
and (ii) of EPIRA and Section 1, Rule 3 of the sector partnership and participation in the
Implementing Rules and Regulations of EPIRA operations of rural electric cooperatives or
or “EPIRA-IRR,” the Department of Energy “ECs” toward sustainable financial viability,
(DOE) is mandated to encourage private enhance ECs access to private capital, and to
sector investments in the electricity sector, improve services to electricity end-users.
and to facilitate and encourage reforms in
the structure and operation of distribution SECTION 1. Definition of Terms. –
utilities for greater efficiency and lower costs;
Unless the context otherwise indicates, the
WHEREAS, pursuant to Section 37 (e) (p) of terms used in this Circular shall have the
EPIRA and Rule 3 of EPIRA-IRR, the DOE has following meanings:
the responsibility to formulate such rules and
regulations as may be necessary to implement (a) “Department of Energy” or “DOE” refers
the objectives of EPIRA; to the government agency created

pursuant to Republic Act No. 7638 whose (i) “Person” refers to a natural or juridical
expanded functions are provided under person, as the case may be.
EPIRA;
SEC. 2. Declaration of Policy. –
(b) “Electric Cooperative” or “EC” means a
distribution utility organized pursuant to It is hereby declared the policy of the DOE for
Presidential Decree No. 269, as amended, ECs to achieve the readiness to compete in
or as otherwise provided under EPIRA; the restructured and competitive electricity
market. Towards this end, the DOE is
(c) “ERC” means the Energy Regulatory implementing, supporting and promoting
Commission established under Section programs and projects to urge ECs to
38 of EPIRA; undertake structural and operational reforms
with a view to achieving greater efficiency
(d) “Investor-Operator” may include, and lower costs, through collaboration with
without limitation, private firms, the private investor-operator/s to gain access
nongovernmental organizations, to private sector capital and management
cooperatives, distribution utilities, expertise.
generation companies, or subsidiaries
of distribution utilities or generation The DOE recognizes that reform options ECs
companies, or combinations thereof may consider include, but are not limited to,
to embrace such groupings as joint the following:
ventures, consortia, and partnerships;
(a) Collaborative efforts with private sector
(e) “Investment Management Contract” or participants, such as an investor-operator,
“IMC” refers to one of the modalities under IMCs;
of private sector participation in the
management and operation of electric (b) Amalgamations, either through a
cooperatives further described in Section merger, consolidation or regional joint
3 of this Circular; management arrangements; and

(f) “LGU Guarantee Corporation” or “LGUGC” (c) Conversion into Stock Cooperatives under
refers to the entity appointed by the DOE, Cooperative Development Authority
to manage a credit guarantee program to (CDA) or Stock Corporations under the
enhance EC credit worthiness; Corporation Code.

(g) “Memorandum of Agreement” or “MOA” As regards IMCs, it is hereby further
means the agreement to be entered declared the policy of DOE to support only
into and executed by and between the IMC transactions concluded through a
DOE, NEA and an EC which sets out the transparent and competitive bidding process,
terms and conditions of the process where the resulting IMC offers the EC an
to be observed in assisting the EC in arrangement which is transparent, long-
establishing the partnership between the term, competitive, comprehensive, and
private sector participant and the EC; demonstrates sustainable solution for the
efficient operation of the EC.
(h) “National Electrification Administration”
or “NEA” refers to the government agency It is the stated policy of DOE that it will provide
created under Presidential Decree No. all necessary support to ECs interested and/or
269, as amended, and whose additional participating in the implementation of IMCs.
mandate is further set forth under EPIRA;
and
SEC. 3. Essential Features of the IMC. – SEC. 4. Issuance of NEA Memorandum. –

The IMC, as duly endorsed by the DOE, is a As an expression of its support for and
contractual relationship between a willing endorsement of IMC, the NEA shall, within
EC and a willing investor-operator, for the thirty (30) days from the promulgation of this
infusion of risk capital and provision of Circular, issue a memorandum substantially
management expertise by the latter to the setting out the following:
former, to provide for sustainable EC recovery
based on improved efficiency, lower costs and (a) Endorsement of the IMC, as defined
systems losses reduction. in Section 1 (e) hereof and with the
essential features set out in Section 3
The essential features of the IMC are: of this Circular, to qualified ECs. It is
acknowledged that the IMC has the dual
(a) The EC remains the duly authorized purpose of providing ECs with access to
distribution utility; hence, members capital, they could not otherwise obtain,
of the EC, through the EC Board, shall and improving performance incentives.
continue to exercise the rights and
responsibilities under its franchise. It (b) Recognition of the participation of the
shall continue to be regulated by the ERC. DOE-appointed Transaction Advisor
(as provided in Section 5 hereof) in the
(b) The EC will continue to function and act implementation of IMCs, to ensure that
through its Board, which shall retain a transparent and competitive bidding
critical residual powers under the IMC, process is undertaken to tailor the IMC to
such as, but not limited to: the needs of participating qualified ECs
and to match a suitable investor-operator
(i) monitoring performance of the with and EC.
investor-operator to ensure
compliance with agreed performance (c) Encouragement by NEA for ECs to consider
standards and deliverables; and the IMC, and in doing so, to further avail
the services of the Transaction Advisor in
(ii) working with the investor-operator undergoing the IMC process.
to approve and implement an
investment program consistent with Towards this end, ECs are further advised
achieving on-going compliance with to enter into a Memorandum of Agreement
the Distribution Code. (MOA) with the DOE and NEA which shall be
followed in qualifying an EC and facilitating
(c) The EC will retain ownership of and the IMC transaction with the investor-
strategic control of its assets, as well as operator. The MOA sets out the terms and
control over setting the standards of conditions of the IMC process.
service to its customers.
SEC. 5. Guided Transaction Process. –
(d) To ensure that the EC is adequately
protected and reasonably assured of To facilitate a transparent and competitive
sustainable recovery, the investor- bidding process, the DOE has appointed a
operator will only obtain a return on Transaction Advisor. The Transaction Advisor
investment and so remunerated where has been engaged to act as the transaction
systems loss reduction is achieved process guide and independent broker
and costs are considerably decreased, between the EC and an investor-operator, to
through an equitable profit-sharing and/ ensure that a transparent and competitive
or lease option scheme. bidding process is in place and is undertaken
to tailor the IMC in a manner suitable to enhance EC credit worthiness. This program,
the EC, while at the same time making the funded by the Global Environment Facility and
transaction attractive to potential investor- the World Bank, aims to provide partial credit
operator/s. guarantees to local Philippine banks (financial
institutions) for loan to ECs or investor-
DOE has instructed the Transaction Advisor operators. The DOE shall encourage LGUGC
to develop a best-practice model IMC, which to support the implementation of IMCs, by
protects and advances the interests of EC and recognizing such contracts as significant
its members. contributions to reducing credit risk.

ECs desirous of exploring the IMC option are SEC. 7. Repealing Clause. –
strongly encouraged to avail themselves of
the services of the Transaction Advisor, duly All pertinent issuances, circulars and
appointed by the DOE. Interested ECs are memoranda inconsistent with this Circular
thus invited to enter into a MOA with DOE are hereby amended or repealed accordingly.
and NEA, which will set the terms for the
support that each EC will receive at various SEC. 8. Saving Clause. –
stages of the IMC transaction process.
(a) If for any reason, any provision of this
SEC. 6. Support for and Regulation of ECs Circular is declared unconstitutional or
Under IMCs. – invalid, the other parts or provisions
hereof which are not affected thereby
The end-users shall be protected from shall continue to be in full force and
any rate increase arising from the IMC effect.
transaction. On the other hand, the DOE is
cognizant of the need for investor-operator (b) The implementation of this Circular shall
to achieve the required returns on their not exempt the parties from complying
investments once the target EC performance with applicable laws and government
is met and operating surpluses are realized. rules and regulations.
Investor-operators need to be protected
from the risk that such surpluses are SEC. 9. Effectivity. –
dissipated through regulated rate reductions.
Accordingly, the DOE and ERC will consult and This Circular shall take effect within fifteen
petition the ERC for development of a special (15) days upon publication in newspaper of
regulatory regime for ECs under private general circulation.
sector partnerships, under which ECs can opt
into a locked-in tariff path. Such tariff path
will provide certainty both to consumers and VICENTE S. PÉREZ, JR.
potential investor-operators. Secretary

The DOE has also appointed the LGU Fort Bonifacio, Taguig
Guarantee Corporation (LGUGC) to manage Metro Manila, Philippines
a credit guarantee program designed to 18 June 2004

ERC RESOLUTION NO. 22, Series of 2006
A RESOLUTION PROMULGATING THE RULES FOR THE REGULATION OF QUALIFIED THIRD PARTIES
PERFORMING MISSIONARY ELECTRIFICATION IN AREAS DECLARED UNVIABLE BY THE DEPARTMENT
OF ENERGY
WHEREAS, Section 43 (t) Republic Act No. WHEREAS, the ERC received two (2) written
9136, otherwise known as the Electric comments on the Proposed Guidelines and
Power Industry Reform Act of 2001 (EPIRA), oral comments given during the scheduled
authorizes the Energy Regulatory Commission public consultations and the same were
(ERC) to perform such “regulatory functions considered in its deliberations on the
as are appropriate and necessary in order Proposed Guidelines and the necessary
to ensure the successful restructuring revisions were made thereto;
and modernization of the electric power
industry…;” WHEREAS, in accordance with its mandate
under the EPIRA, after consideration of the
WHEREAS, on 16 December 2005, the various views and comments submitted and
ERC posted the “Proposed Guidelines for manifested by interested parties, and based
the Regulation of Qualified Third Parties on its own study and analysis, the ERC finds
Performing Missionary Electrification in Areas it appropriate to approve the Proposed
Declared Unviable by the Department of Guidelines with the revisions adopted by
Energy” (Proposed Guidelines) on its official the Commission, including the change in
website (www.erc.gov.ph) for comments; its title to the “Rules for the Regulation of
Qualified Third Parties Performing Missionary
WHEREAS, on 16 January 2006, the ERC
Electrification in Areas Declared Unviable by
issued a Notice of Public Consultations which
the Department of Energy;”
indicated the scheduled dates and venues
for the public consultations on the Proposed
NOW, THEREFORE, the ERC hereby RESOLVES,
Guidelines, as follows:
as it is hereby RESOLVED, to PROMULGATE the
Date Venue RULES FOR THE REGULATION OF QUALIFIED
30 January 2006 General Santos City THIRD PARTIES PERFORMING MISSIONARY
9 February 2006 Iloilo City ELECTRIFICATION IN AREAS DECLARED
27 February 2006 Palawan UNVIABLE BY THE DEPARTMENT OF ENERGY,
which is hereto attached.
WHEREAS, the ERC conducted public
consultations on the dates and venues Pasig City, 3 May 2006
specified above;
RODOLFO B. ALBANO JR.
WHEREAS, in the interest of hearing Chairman
additional comments and opinions on the
Proposed Guidelines, the ERC issued a Notice OLIVER B. BATULID JESUS N. ALCORDO
dated 17 February 2006, scheduling two (2) Commissioner Commissioner
additional public consultation dates in the
following venues:
RAUF A. TAN ALEJANDRO Z. BARIN
Date Venue
Commissioner Commissioner
9 March 2006 Tuguegarao City

20 March 2006 Digos City

Republic of the Philippines
ENERGY REGULATORY COMMISSION
San Miguel Avenue, Pasig City
RULES FOR THE REGULATION OF QUALIFIED THIRD PARTIES PERFORMING MISSIONARY

ELECTRIFICATION IN AREAS DECLARED UNVIABLE BY THE DEPARTMENT OF ENERGY
Pursuant to Section 59 (Alternative Electric of private capital and participation of

Service for Isolated Villages) in relation to private sector in attendant risks, in the
Section 70 (Missionary Electrification) and energization of remote and unviable
Section 34 (Universal Charge) of Republic Act areas of the country through Qualified
No. 9136, otherwise known as the “Electric Third Parties;
Power Industry Reform Act of 2001” (“EPIRA”),
and its Implementing Rules and Regulations (b) The issuance of the necessary permits
(“EPIRA-IRR”), and cognizant of the policies of required by the EPIRA for Qualified Third
the Department of Energy (DOE) as expressed Parties to provide electricity service in
in DOE Department Circular DC2004-06- Declared Unviable Areas; and
006 entitled “Prescribing the Qualification
Criteria for the Qualified Third Party” and (c) Setting the rates, subsidies and service
DOE Department Circular No. DC2005-12- standards for Qualified Third Parties.
011 entitled “Prescribing the Guidelines
for Participation of Qualified Third Parties Section 2. Definition of Terms. –
(QTPs) for the provision of Electric Service
in Remote and Unviable Areas, Pursuant (a) “Authority to Operate” or “ATO” refer
to Sections 59 and 70 of the Electric Power to the authorization issued by the ERC
Industry Reform Act and its Implementing to the QTP which shall constitute as the
Rules and Regulations” for the promotion of latter’s license to provide electricity and
rural electrification, the Energy Regulatory related services, including as necessary,
Commission (ERC) hereby adopts and generation of electricity in a specified
promulgates these Rules for the regulation QTP Service area;
of Qualified Third Parties (QTPs) operating in
Declared Unviable Areas by the DOE. (b) “Certificate of Compliance” or “COC”
refers to a certificate given to an Entity
ARTICLE I by the Energy Regulatory Commission
General Provisions to engage in the operation of a power
plant facility used to generate electricity
Section 1. Purpose. – These Rules shall pursuant to Section 6 of the EPIRA and
establish the framework and procedure for: Sections 4 and 5 of the EPIRA-IRR;
(a) Determining how ERC will quality and (c) “Delegated NPC-SPUG Area” refers to
authorize electric service providers in an area not connected to the national
unviable areas, consistent with Rule grid transmission system where a New
14 (Provision of Electricity by Qualified Power Provider (NPP) or NPPs act on
Third Parties) of the EPIRA-IRR, and in behalf of NPC-SPUG in providing electric
pursuance of the State’s policies to ensure generation services and its associated
and accelerate the total electrification power delivery systems;
of the country and enhance the inflow

(d) “Declared Unviable Area” refers to (m) “EPIRA-IRR” refers to the Implementing
an Unviable Area which the DOE has Rules and Regulations of the EPIRA;
declared to be open for participation by
Qualified Third Parties, in accordance (n) “Full Cost Recovery Rate” or “FCRR”
with Section 59 of EPIRA and Section 3 of refers to the rate, expressed in Peso
Rule 14 of the EPIRA-IRR, after the waiver per kilowatt-hour, that recovers the full
thereof by the concerned Distribution efficient costs of providing Electricity
Utility for inclusion in the DOE’s Qualified Service sufficient to enable the Qualified
Third Party Program; Third Party to operate viably;
(e) “Department of Energy” or “DOE” (o) “Missionary Electrification” refers to

refers to the government agency created the provision of basic electricity service
pursuant to Republic Act No. 7638; in Unviable Areas with the ultimate aim
of bringing the operations in these areas
(f) “Distribution Code” or “Code” refers to to viability levels, including the provision
the term defined in Section 4(m) of the of power generation and its associated
EPIRA and Rule 4(y) of the EPIRA-IRR; power delivery systems in areas that
are not connected to the national grid
(g) “Distribution Utility” or “DU” refers transmission system;
to any electric cooperative, private
corporation, government-owned utility (p) “Missionary Electrification Subsidy”
or existing local government unit which or “ME Subsidy” refers, for purposes of
has an exclusive franchise to operate a these Rules, to the fund duly approved by
distribution system in accordance with the ERC to cover the difference between
its franchise and the EPIRA as defined in the FCRR and the Subsidized Approved
Section 4(q) of the EPIRA and Rule 4(cc) Retail Rate of the Qualified Third Party
of the EPIRA-IRR; sourced from the Universal Charge for
Missionary Electrification;
(h) “Electric Cooperative” or “EC” refers to a
distribution utility organized pursuant to (q) “National Power Corporation – Small
Presidential Decree No. 269, as amended, Power Utilities Group” or “NPC-SPUG”
as defined in Section 4 (r) of the EPIRA refers to the functional unit of NPC created
and Rule 4(ee) of the EPIRA-IRR; to pursue missionary electrification
function as defined in Section 4(tt) of the
(i) “Electricity Service” refers to the service EPIRA and Rule 4(bbbb) of the EPIRA-IRR;
embodied in the QTP Service Contract
duly endorsed by the DOE; (r) “Qualified Third Party” or “QTP” refers
to an alternative electric service provider
(j) “Energy Regulatory Commission” or that meets the standards in and is chosen
(“ERC”) refers to the independent, quasi- in accordance with DOE Circular No.
judicial regulatory agency created under 2005-12-011, and is duly qualified and
Section 38 of EPIRA; authorized by the ERC to serve Declared
Unviable Areas pursuant to Section 59 of
(k) “Entity” refers to any person or body the EPIRA and Rule 14 of the EPIRA-IRR;
corporate, and may include a cooperative
or a local government unit; (s) “QTP Service Area” refers to the
geographic area corresponding to the
(l) “EPIRA” refers to Republic Act No. 9136, Unviable Area/s where QTP shall be
otherwise known as the “Electric Power authorized to provide Electricity Service
Industry Reform Act of 2001”; as stipulated in the QSC;
(t) “QTP Service Contract” or “QSC” refers to pursuant to Section 34 of the EPIRA as
the contract entered into by NPC and the defined in Section 4(ddd) and 34 of the
QTP, duly approved by the ERC, defining EPIRA and Rule 4(rrr) and Rule 18 of the
the QTP’s responsibilities in undertaking EPIRA-IRR;
missionary electrification in Declared
Unviable Areas. This contract shall (z) “Universal Charge for Missionary
set the terms and conditions by which Electrification” or “UC-ME” refers to the
the QTP shall provide the Electricity portion of the Universal Charge which is
Service, and shall include the tariff levels, designated for Missionary Electrification;
other electric service charges, and the
applicable performance and service (aa) “Universal Area” refers to a geographical
standards to be met by such QTP; area within the franchise area of a DU
where the immediate extension of
(u) “Selection Process” refers to the distribution line is not feasible, as defined
formal steps undertaken by the DOE to by Rule 4(ssss) of the EPIRA-IRR. For
choose, in accordance with the criteria purposes of these Rules, Unviable Areas
set forth in DOE Circular No. 2005- shall also include those areas which
12-011, the prospective QTP that can are currently served by the concerned
apply for authorization with the ERC for DU but are deemed unviable and are
the provision of Electricity Service in a subsequently declared by the DOE as
Declared Unviable Area; open for participation by Qualified Third
Parties; and
(v) “Subsidized Approved Retail Rate” or
“SARR” refers to the rate, expressed in (bb) “Waiver Contract” refers to the contract
Peso per kilowatt-hour, that the ERC has entered into between the DU and the
determined to be the maximum that an QTP pursuant to Rule 14, Section 5(a) of
end-user in a Declared Unviable Area shall the EPIRA IRR wherein the DU transfers
pay for the Electricity Service provided by the responsibility to service the area
a QTP in that Declared Unviable Area; described therein to the QTP. For
avoidance of doubt, the contract shall be
(w) “Subsidy and Disbursement Agreement” with a period and during its existence,
or “SDA” refers to the agreement entered the DU’s franchise shall not be deemed as
into between the QTP and NPC setting transferred, abandoned and/or modified
forth the terms and conditions governing with respect to the area included therein,
the QTP’s availment of the UC-ME subsidy as only the right to service such area shall
to allow it to viably serve the QTP Service be deemed assumed by the QTP.
Areas;
Section 3. Scope. – These Rules shall apply
(x) “Retail Rate” refers to the total price paid to Entities which seek to provide Electricity
by end-users consisting of the charges for Service as QTPs in Declared Unviable Areas
generation, transmission, and related pursuant to Section 59 of the EPIRA and Rule
ancilliary services, distribution, supply 14 of the EPIRA-IRR.
and other related charges for electricity
services as defined in Rule 4(uuu) of the ARTICLE II
EPIRA-IRR; Qualification and Authorization of Entities
to Provide Electricity Service in Declared
(y) “Universal Charge” or “UC” refers to the Unviable Areas
charge, if any, imposed for the recovery
of stranded cost and other purposes

Section 1. Who may become QTPs. – The (c) SDA signed between the QTP and the
following may be considered as QTPs: NPC, if any;
(a) An Entity, except a DU whose franchise (d) DOE Certification that the QTP was pre-
includes the Declared Unviable Area qualified in accordance with DOE Circular
being applied for service by QTP, who No. 2004-06-006 and DOE Circular No.
was determined as a prospective QTP, in 2005-12-011;
accordance with the Selection Process
conducted by the DOE for Declared (e) DOE Certification that the QTP was
Unviable Areas; or determined based on the DOE’s Selection
Process;
(b) An Entity, other than the concerned
DU, its affiliate or subsidiary, who, prior (f) Relevant technical details of engineering
to the issuance of these Rules, without design of the proposed system, including
undergoing the DOE’s Selection Process, the generation facilities and associated
is already engaged in providing electricity delivery systems, if necessary;
service in an Unviable Area; provided
that, the same or a portion thereof (g) Relevant financial details of the project, if
becomes a Declared Unviable Area. necessary;
An affiliate or subsidy of a DU may participate (h) Other necessary permits to implement

in the Selection Process of the DOE with the project, including environmental
respect to a Declared Unviable Area within certificate from appropriate government
such DU’s franchise area and become a agencies; and
prospective QTP therein under Section 1 (a),
provided that there is complete business, (i) Other documents and information that
operational, and functional separation the ERC may require.
between such affiliate or subsidiary and the
concerned DU. Section 3. Qualification and Authorization
of Entities under Section 1 (b) to Operate
Section 2. Qualification and Authorization as QTPs. – An Entity falling under Section 1
of Entities under Section 1 (a) to Operate (b) who intends to continue operating as a
as QTPs. – An Entity who is pre-qualified by QTP shall file an application with the ERC,
the DOE under DOE Department Circular No. within One (1) Year from effectivity of these
2004-06-006 and selected as a prospective Rules, for authorization to provide, as a
QTP through the DOE’s Selection Process for QTP, Electricity Service in a specific Declared
a specific Declared Unviable Area, shall file Unviable Area where it is already operating as
an application with the ERC for authorization an electricity service provider. Together with
to provide Electricity Service in an specific its application, it shall submit the following:
Declared Unviable Area as a QTP and for
issuance of its corresponding ATO and for (a) QSC between the QTP and the NPC;
approval of its QSC with NPC. Together with
its application, it shall submit the following: (b) Waiver Contract signed by the concerned
DU and the QTP;
(a) QSC between the QTP and NPC;
(c) SDA signed between the QTP and NPC, if
(b) Waiver Contract signed by the concerned any;
DU and the QTP;

(d) Data regarding the continuation of Section 5. NPC Performing the Functions
operations of the applicant in the of the QTP. – In the event that no QTP
Declared Unviable Area; qualifies to provide Electricity Service to a
Declared Unviable Area, NPC-SPUG shall act
(e) DOE Certification that the area already as the provider of last resort and perform the
being served by applicant is a Declared functions of the QTP. NPC shall include its ME
Unviable Area; Subsidy requirements in its application to the
ERC as provided in Section 3(a) of Article IV.
(f) Relevant technical details of engineering
design of the system used by applicant, Section 6. Special Rules for Small QTPs not
including the generation facilities and Requiring Subsidies. – An Entity providing
associated delivery systems, if necessary; Electricity Service in a Declared Unviable Area
which:
(g) Relevant financial details of applicant’s
operations, if necessary; (a) has a generating capacity below 200 kW;
or
(h) Other necessary permits, including
environmental certificate from (b) has fewer than 100 connections; and
appropriate government agencies, if
applicable, secured by applicant; and (c) does not seek to avail of a Missionary
Electrification Subsidy because its retail
(i) Other documents and information that rate is equal to or lower than the ERC-
the ERC may require. approved SARR in the Declared Unviable
Area where it operates,
Section 4. ERC Action on the Application. –
Upon the filing of the application, the ERC may, shall be deemed qualified and authorized
on its own or upon motion, grant a Provisional to act as QTP upon issuance of a COC in
Authority (PA) based on the allegations of the its favor, provided that such authorization
application and on such other documents shall be valid only during the effectivity of
attached thereto or submitted by the parties. the COC, while the above conditions are
The ERC, if necessary, may schedule a hearing satisfied, or upon revocation by the ERC,
for the issuance of a PA not later than thirty whichever comes earlier.
(30) days from the filing of the application.
Thereafter, the Commission shall issue a If the above conditions are no longer
ruling either granting or denying the PA prevailing, said Entity shall comply with
stating clearly the reasons therefor, within Article II, Section 2 or 3, as applicable, if it
seventy five (75) days from the filing of the intends to continue operating as a QTP.
application.
Section 7. QTP Service Contracts (QSCs). –
The ERC shall decide the application within the QSC between a QTP and NPC shall include
sixty (60) days from the time the applicant the following:
formally offers its evidence; otherwise,
the application shall be deemed approved (a) A clear description of the scope of services
upon the lapse of said period. Its decision to be offered by the QTP, including
approving the application shall constitute schedule for the target connections, and
as the applicant’s license or ATO within the modalities of payment collection, among
Declared Unviable Area applied for as a QTP. others;

(b) The Full Cost Recovery Rate (FCRR) and Section 2. Rules for the Setting of Service
an adjustment mechanism provision, if and other Standards. – Given the different
any, that promotes fair and reasonable technical configurations of the facilities that
consumer tariffs in accordance with the the QTP may propose to conduct, the ERC
level of service provided by the QTP; hereby adopts the following rules for setting
the service and other operating standards for
(c) Efficient allocation of risk; QTP operation, on a case-to-case basis:
(d) The term of the QSC, which shall be (a) The ERC shall have the full authority to
commensurate to recover the necessary set the actual parameters to be followed
investment of the QTP, but in no case to by any QTP during its review of the
exceed twenty (20) years; technical design for applicable generating
facilities and associated delivery systems
In the event that the QSC’s term exceeds and inspection of the actual construction
the remaining franchise term of the of entire system. The service and other
concerned DU, the QSC’s term shall operating standards specified in the
be shortened and the FCRR adjusted approved QSC shall be used as the basis
accordingly, unless Congress grants of ERC’s evaluation of the technical and
such DU an extension or renewal of its operating performance of the QTP.
franchise;
(b) ERC shall allow special operating
(e) The responsibility of the QTP to ensure, standards for low-cost electrification
at all terms, consumer safety and solutions to cater to the socio-economic
protection; and conditions of the target customers in the
Declared Unviable Areas.
(f) The applicable service and safety
standards as provided in Article III. (c) As a general rule, the QSC must conform
to the following requirements of the
Section 8. Other Required Permits. – A Philippine Distribution Code for safety
QTP whose Electricity Service includes the and acceptable service standards for the
generation of electricity shall likewise be consumers, subject to the size of QTP and
required to secure a COC from the ERC in the ability to pay of the target customers:
accordance with the ERC’s Guidelines for
the Issuance of Certificate of Compliance (i) Below One (1) MW: those provisions
for Generation Companies/Facilities, as of the Philippine Distribution Code
Amended. that represent the minimum for
safety standards; and
ARTICLE III
Service Standards and Compliance (ii) One (1) MW and above provisions of
with the Distribution Code the Philippine Distribution Code that
represent the minimum for safety
Section 1. Service Standards and Compliance and service standards.
with the Distribution Code. – Service and
safety standards that the ERC shall require ARTICLE IV
QTPs to meet, which may include applicable Process for Setting and Adjusting Full Cost
provisions of the Distribution Code, shall be Recovery Rate (FCRR), the Subsidized
included as specific terms and conditions of Approved Retail Rate (SARR) and Missionary
the QSC. Electrification Subsidy (ME Subsidy)

Section 1. Determination of the FCRR. – Where the full cost of serving an area is higher
In the QTP’s application with the ERC for than the SARR, an ME Subsidy may be offered
authorization to provide Electricity Service to the QTP operating in the area to allow it to
in a specific Declared Unviable Aera as a QTP viably serve the same while charging no more
and issuance of its corresponding ATO and for than the SARR. In such cases, revenues from
approval of its QSC with NPC, it shall indicate the SARR combined with the ME Subsidy
its proposed FCRR. The ERC shall evaluate should put the QTP in the same financial
and set the appropriate FCRR, as follows: position as if it was able to charge the FCRR.
(a) For areas where two or more qualified Section 3. Rules for Setting the ME Subsidy.
Entities participated in the DOE’s – Consistent with the NPC-SPUG filing for
Selection Process, the FCRR shall be that UC-ME for Delegated NPC-SPUG Areas as
FCRR proposed by the selected Entity. provided for in ERC Resolution No. 11, Series
of 2005 entitled “Guidelines for the Setting
(b) For areas where there is only one and Approval of Electricity Generation Rates
Entity who participated or qualified and Subsidies for Missionary Electrification
in the Selection Process, the FCRR Areas,” the following requirements and
shall be determined using the twelve procedures shall be followed in the
percent (12%) Return on Rate Base submission, evaluation and approval of the
(RORB) methodology or some other UC-ME for QTP areas.
appropriate methodology as benchmark
for determining if the proposed FCRR of (a) Periodic Filing. On or before September
such Entity is reasonable. 30 of every calendar year, NPC-SPUG
shall file its application with the ERC to
(c) For applications filed pursuant to Section set the UC-ME sufficient to cover the
3 of Article II, the ERC shall also use the ME Subsidy estimated requirements for
twelve percent (12%) Return on Rate NPC-SPUG, including the amount needed
Base (RORB) methodology or some other to sufficiently cover the ME Subsidy
appropriate methodology as benchmark requirements of QTPs.
for determining if the proposed FCRR is
reasonable. In its decision, the ERC shall specifically
indicate the amount, expressed in Peso
Section 2. Rules for Setting the Subsidized per Kilowatt-hour, allocated for QTPs.
Approved Retail Rate (SARR).
(b) Quartery True-Up Adjustments. NPC-
NPC-SPUG shall file an application with ERC for SPUG shall file a quarterly application,
the setting of the maximum retail rate which if necessary with the ERC to recover any
customers should pay for electricity in QTP shortfall in the ME Subsidy caused by
Service Areas. Based on this application, the factors such as:
ERC will establish the maximum Subsidized
Approved Retail Rate (SARR). This rate may be (i) Collection shortfall;
uniform throughout the Philippines, or may (ii) Adjustments in the FCRR; and
be established at different levels for different (iii) Other analogous cases.
areas, according to the state of development
of the areas. (c) Administration of ME Subsidy. NPC-SPUG
shall establish a separate trust account
Pending ERC approval of the NPC-SPUG wherein all UC-ME transfers allocated
Application, the SARR for a particular QTP to QTPS from the PSALM administered
Service Area shall be the ERC-approved and Special Trust Fund will be deposited. This
existing retail rate of the waiving DU.
bank account will be governed by a set Where:
of predefined rules. The administrator
of the account will make disbursements T = Forthcoming year
to the QTPs according to such rules. t-1 = Current year
The transfer rules from the Account
Administrator to the QTPs will also be UCMEt-1= UC-ME (PhP/kWh) approved for
defined in the SDA signed by the QTP and the current year Aft
NPC-SPUG.
If NPC-SPUG fails to file an acceptable
(d) Reconciliation of Actual UC-ME. On UC-ME application with the ERC before
or before the first quarter of the September 30 of the current year:
calendar year, NPC-SPUG shall reconcile
all amounts received against all = 0.5 when t = 2006
disbursements made for the previous = 0.6 when t = 2007
year. If the reconciliation results in = 0.7 in all other subsequent years
NPC having surplus funds, the amount
of the ME Subsidy for the year shall be If ERC is unable to issue a UC-ME Decision
adjusted accordingly. Conversely, if the before December 31 of the Current Year:
reconciliation results in the NPC-SPUG
experiencing a deficiency, NPC-SPUG = 1.00
shall be entitled to file an application for
an increase in the ME Subsidy to cover Nothing in this provision shall be construed
the shortfall. as allowing the reduction in the subsidy
allocation of small QTPs as identified in the
(e) Priority in the UC-ME. The Missionary MEDP.
Electrification Development Plan (MEDP)
shall indicate the priority or allocation Section 4. Rules for Adjusting the FCRR and
among the UC-ME supported activities. the SARR. – The FCRR and the SARR for a QTP
In any event, QTPs shall be pari passu Area may be adjusted as follows:
or equal in priority with all NPPs in
Delegated NPC-SPUG areas which require (a) The FCRR may be adjusted automatically
ME Subsidies. However, small QTPs on a monthly basis by the QTP to reflect
which are identified in the MEDP shall changes in the price of fuel, foreign
enjoy higher priority on the provision of exchange rates or other input costs,
subsidy over larger QTPs and NPPs. in accordance with the Retail Rate
adjustment rules set out in the QSC for
(f) Automatic Adjustment to UC-ME. If as a that Area.
result of factors outside its control, NPC-
SPUG is unable to file an acceptable UC- (b) After a period of time, the ERC may
ME application for Delegated NPC-SPUG undertake a review of the SARR, to reset
Areas and/or QTPs before September 30, the rate at a new level. Increases in the
or the ERC is unable to issue a UC-ME SARR may be made to:
Decision before the end of the Calendar
Year, the UC-ME approved by the ERC (i) Directly reflect increases in the FCRR;
for the previous calendar year will be and
automatically adjusted based on the
following formula and events: (ii) Reduce the amount of the subsidy
required.
UCMEt = UCMEt-1xAF1

ARTICLE V ARTICLE VI
Miscellaneous Provisions Separability
Section 1. Nothing in these Rules shall be If for any reason, any section of these Rules
construed as to limit the authority of the DOE is declared unconstitutional or invalid, the
to declare what Unviable Areas, regardless other parts or sections hereof which are not
of whether or not the concerned DUs waive affected thereby shall continue to be in full
such areas, shall be open for participation by force and effect.
QTPs under Section 3, Rule 14 of the EPIRA-
IRR. ARTICLE VII
Effectivity
Section 2. Consistent with Section 5 (a), Rule
14 of the EPIRA-IRR, in case the DU fails to These Rules shall become effective fifteen
provide electricity to an Unviable Area, or (15) days after its publication in a newspaper
if such service made available to the area is of general circulation or filing thereof with
not comparable to the service provided to the Office of the National Administrative
the rest of the DU’s franchise area, and such Registrar at the University of the Philippines
DU refuses to waive said Unviable Area for Law Center, whichever comes earlier.
inclusion in DOE’s QTP Program, the ERC shall,
upon petition by any affected party or on its Pasig City, 3 May 2006
own initiative, after due notice and hearing,
endorse the Unviable Area to the DOE for RODOLFO B. ALBANO, JR.
inclusion in its QTP Program and require the Chairman
DU to execute a Waiver Contract with the QTP
chosen in accordance with the DOE’s CSP to OLIVER B. BUTALID
provide Electricity Service in such Unviable Commissioner
Area.
ALEJANDRO Z. BARIN
Section 3. The ERC may exempt the QTPs Commissioner
from its requirements imposed on generation
companies and distribution utilities on the JESUS N. ALCORDO
grid as it deems appropriate. Commissioner

RAUF A. TAN
Commissioner


Chapter 3
Energy Efficiency and Conservation

AN ACT PRESCRIBING URGENT RELATED MEASURES NECESSARY AND PROPER TO EFFECTIVELY
ADDRESS THE ELECTRIC POWER CRISIS AND FOR OTHER PURPOSES
SECTION 1. Short Title. – This Act shall be the name and qualifications of the
known as the “Electric Power Crisis Act of contractor, shall likewise be published
1993.” in a newspaper of general circulation
two (2) weeks before the signing of the
SECTION 2. Declaration of Policy. – It is contract;
hereby declared the policy of the State to
adopt adequate and effective measures to (c) The contracts shall be awarded only to
address the electric power crisis that has contractors with:
disrupted the country’s economic and social
life and assumed the nature and magnitude (i) proven competence and experience
of a public calamity. in similar projects;

SECTION 3. Negotiated Contracts. – (ii) competent key personnel and
Pursuant to the above declared policy sufficient and reliable equipment;
and in the public interest and whenever it and
is advantageous to the Government, the
President may enter into negotiated contracts (iii) sound financial capacity; and
for the construction, repair, rehabilitation,
improvement or maintenance of power (d) All the awarded projects shall be subject
plants, projects and facilities, subject to the to existing government auditing rules
following requirements: and regulations governing negotiated
contracts.
(a) In order to inform competitive
contractors, the list of projects to be SECTION 4. Return on Rate Base. – Further
undertaken under this Act, together with pursuant to the above- declared policy, the
their description, the budgetary estimates President is hereby authorized, whenever it
involved and other salient features, shall is necessary for the national welfare and in
be published in a newspaper of general the public interest, to fix the rate of return on
circulation thirty (30) days after the rate base of the National Power Corporation
effectivity of this Act; (NAPOCOR) to not more than twelve per
centum (12%) of the rate base as defined
(b) Upon perfection of the contract, the in Section 4 of Republic Act No. 6395, as
terms and conditions of the same, with amended. Any increase in power rates shall

take effect only upon approval of the Energy authorized herein shall be entitled to such
Regulatory Board (ERB), after due notice and benefits as may be determined by the Board
hearing: Provided, That any increase in power of Directors of the NAPOCOR, with the
rates by the NAPOCOR to its customers within approval of the President.
the year 1993 shall not exceed an average of
eighteen centavos (P 0.18) per kilowatt hour: The President may upgrade the compensation
Provided, further, That any increase in power of the personnel of the NAPOCOR at rates
rates shall not be passed on to households comparable to those prevailing in privately-
consuming not more than one hundred (100) owned power utilities to take effect upon
kilowatt-hours per month for five (5) years approval by Congress of the NAPOCOR’s
following the effectivity of this Act: Provided, budget for 1994.
furthermore, That the existing subsidy
enjoyed by households consuming less than SECTION 6. Subsidy. – The Philippine
three hundred (300) kilowatt-hours per month Amusement and Gaming Corporation
shall continue in effect; Provided, finally, (PAGCOR) shall set aside ten per centum
That no power rate increase whatsoever shall (10%) of its annual aggregate gross earnings
be imposed by the NAPOCOR in provinces for the next five (5) years as subsidy to the
producing geothermal power of not less NAPOCOR: Provided, That such percentage
than one hundred megawatts (100 MW) of allocation shall be based on gross revenue
actual capacity for one (1) year following the after deducting the five per centum (5%)
effectivity of this Act. franchise tax and the fifty per centum (50%)
income share of the National Government.
When the petition appears to be sufficient in
form and in substance, the ERB, during the SECTION 7. Duration of Grant of Powers. –
pendency of the case, may issue a provisional The authority granted to the President under
authority to increase the power rates, in this Act shall subsist, be valid and effective for
whole or in part, which increase shall last for a a period of one (1) year from the effectivity
period of sixty (60) days, and may be extended of this Act, unless sooner withdrawn by a
for another sixty (60) days: Provided, That resolution of Congress, without prejudice
the ERB can issue such provisional authority to rights and benefits that may have been
only during the effectivity of this Act. vested, and culpabilities and liabilities that
may have been incurred.
SECTION 5. Reorganization of the National
Power Corporation. – The President is hereby SECTION 8. Oversight Committees. – There
empowered to reorganize the NAPOCOR, is hereby created an Oversight Committee in
to make it more effective, innovative, and each House of Congress to be composed of five
responsive to the power crisis. For this (5) members of each, as may be designated
purpose, the President may abolish or create by the Senate President and the Speaker of
offices; split, group, or merge positions; the House of Representatives, to monitor the
transfer functions, equipment, properties, implementation of this Act and the exercise
records and personnel; institute drastic cost- of the authority granted thereunder.
cutting measures and take such other related
actions necessary to carry out the purpose The Oversight Committees shall submit
herein declared. Nothing in this Section periodic reports, evaluations and
shall result in the diminution of the present recommendations to the Senate and the
salaries and benefits of the personnel of House of Representatives.
the NAPOCOR: Provided, That any official
or employee of the NAPOCOR who may be SECTION 9. Report to Congress. – The
phased out by reason of the reorganization President shall submit a quarterly report to
Congress on the implementation of this Act.
SECTION 10. Separability Clause. – If for any portions thereof, inconsistent with this Act
reason any provision of this Act is declared are hereby repealed or modified accordingly.
unconstitutional or invalid, other parts or
provisions hereof which are not affected SECTION 12. Effectivity Clause. – This
thereby shall continue to be in full force and Act shall take effect on the day following
effect. its publications in at least two (2) national
newspapers of general circulation.
SECTION 11. Repealing Clause. – All laws,
decrees, orders, rules and regulations, or Approved, April 5, 1993
ADMINISTRATIVE ORDER NO. 103

DIRECTING THE CONTINUED ADOPTION OF AUSTERITY MEASURES IN THE GOVERNMENT

WHEREAS, the continued adoption and SECTION 1. All national government agencies
implementation of austerity measures are (NGAs), including state universities and
necessary in order to meet the country’s fiscal colleges (SUCs), government-owned and-
targets, maintain its macroeconomic stability controlled corporations (GOCCs), government
and improve investor confidence; financial institutions (GFIs), and other
government corporate entities (OGCEs), and
WHEREAS, the national government, their subsidiaries, and other instrumentalities
its agencies and instrumentalities must under the Executive Department, whether
undertake cost-cutting measures to reduce or not they receive funding support through
expenses and channel its scarce resources the General Appropriations Act, are hereby
towards the implementation of the 10-Point ordered to adopt the following austerity
Legacy Agenda; measures:

WHEREAS, government-owned and (a) Suspension of the following:
controlled corporations, government
financial institutions, and other government (1) All foreign travels, except for
instrumentalities should likewise contribute (i) ministerial meetings, and (ii)
to reducing the consolidated public sector scholarship/trainings that are grant-
deficit, and to decreasing the public sector funded or undertaken at no cost to
debt; the government.

WHEREAS, prudent fiscal management Henceforth, all foreign travels of
remains critical in the execution of a sound Presidential appointees, even if
budget policy to ensure a balanced budget by allowed under this provision, must
2009; first be cleared by the Office of the
President. Further, all agencies
NOW, THEREFORE, I, GLORIA MACAPAGAL- shall submit a monthly report to the
ARROYO, President of the Republic of the Office of the President, stating the
Philippines, by virtue of the powers vested in names of officials or employees who
me by law, do hereby order and direct: traveled abroad, the reasons for such
travel, and the cost incurred by the

government. (2) Consumption of fuel, water, office
supplies, electricity and other
(2) All local travels, unless urgency utilities. For this purpose, agencies
necessary and allowed by Secretary are hereby authorized to install
of the Head of the SUC, GOCC, GFI, and use energy-efficient lights and
or OGCE; fixtures, and optimize the utilization
of internet facilities especially for
(3) Purchase of any type of motor long-distance communications;
vehicles, except ambulances and
those required by the military and (c) Suspension of all tax expenditure
police; subsidies to GOCC’s, OGCE’s and local
government units, except those approved
(4) Paid media advertisements, except by the Fiscal Incentives Review Board;
those required in the issuance
of agency guidelines, rules and (d) Adoption of a scheme that will allow
regulations, the conduct of public employees rendering overtime to be
bidding, and the dissemination of compensated through time/days off work
important public announcements; in lieu of overtime pay, in accordance
with guidelines jointly issued by the
(5) Conduct of training, seminars, Department of Budget and Management
and workshops, except if funded (DBM) and the Civil Service Commission
by grants, or if the cost may be (CSC).
recovered though exaction of fees;
(e) In the procurement of goods and services,
(6) Expansion of organizational units strictly comply with the Government
and/or creation of positions, except Procurement Reform Act (RA 9184) and
those following “scrap and build” its Implementing Rules and Regulations,
policy or matched by the deactivation particularly in the use of the Government
of existing units/positions of the Electronic Procurement System for public
same cost; bidding, advertisement of opportunities
and reporting of bid awards results; and
(7) Conduct of celebrations and cultural
or sports activities not related to the (f) Strict prioritization of capital
core function of the agency, except expenditures, and realignment or use of
athletic competitions conducted by savings to fund capital programs of the
public schools or SUC’s; and agencies, especially this in pursuit of the
10-Point Legacy Agenda.
(8) Donations, contributions, grants
and gifts, except if said activities are SECTION 2. Consistent with the government’s
undertaken pursuant to the mandate rationalization policy, the provisions of
of the donor-agency; Republic Act No. 7430, or the Attrition Law,
specifically Section 3 thereof which prohibits
(b) Reduction of at least ten percent (10%) in the filling-up of positions that have been
the cost of the following: vacated by reason of resignation, retirement,
dismissal, death or transfer to another office,
(1) Services of consultants, technical with certain exceptions, are hereby adopted
assistants, contractual, and casual until lifted by the President.
employees; and
SECTION 3. All NGAs, SUCs, GOCCs, GFIs
and OGCEs, whether exempt from Salary
Standardization Law or not, are hereby (c) For other non full-time officials and
directed to: employees, including members of their
governing boards, committees, and
(a) Limit grant of honoraria and other forms commissions: (i) suspend the grant of
of allowance to the following: new or additional benefits, such as but
not limited to per diems, honoraria,
(1) Teaching personnel of the housing and miscellaneous allowances,
Department of Education, or car plans; and (ii) in the case of
Commission on Higher Education, those receiving per diems, honoraria
Technical and Education and Skills and other fringe benefits in excess of
Development Authority, SUCs and Twenty Thousand Pesos (P 20,000.00)
other education institutions engaged per month, reduce the combined total of
in actual classroom teaching whose said per diems, honoraria and benefits to
teaching load is outside the regular a maximum of Twenty Thousand Pesos (P
office hours or in excess of the 20,000.00) per month.
regular load;
SECTION 4. Each NGA, SUC, GOCC, GFI, OR
(2) Lecturers, resources persons, OGCE shall immediately prepare an austerity
coordinators and facilitators in plan to implement the provisions of this
seminars, training programs, and Order.
other similar activities in training
institutions, including those SECTION 5. Heads of NGAs and SUCs, as
conducted by entities for their well as the governing boards of GOCCs GFIs,
officials and employees; and OGCEs shall responsible for the strict
implementation of Memorandum Order
(3) Chairs and members of commissions, No. 20 dated June 25, 2001 and this Order.
boards, councils, or other similar Any violation thereof shall be dealt with
entities who are not paid salaries accordingly.
but compensated in the form of
honoraria as provided by law, rules SECTION 6. The Legislative and Judicial
and regulations; and Branches of Government, as well as
agencies vested with fiscal autonomy, such
(4) Those who are involved in as constitutional commissions and local
government procurement in governments, are strongly urged to adopt the
accordance with Republic Act No. provisions of this Order.
9184 and DBM Budget Circular 2004-
5; Local government units are reminded to
adhere to prescribed limits on personal
(b) Suspend the grant of new or additional services expenditures under the Local
benefits to full-time officials and Government Code, and to maximize the
employees and officials, except for (i) utilization of twenty percent (20%) of their
Collective Negotiation Agreement (CNA) Internal Revenue Allotments for development
Incentives which are agreed to be given projects.
in strict compliance with the provisions
of the Public Sector Labor-Management The Commission on Audit is likewise urged
Council Resolutions No. 04, s. 2002 and to assist in monitoring and ensuring strict
No. 2, s. 2003, and (ii) those expressly compliance of this Order.
provided by presidential issuance;


SECTION 7. This Administrative Order shall Done in the City of Manila this 31st day of
take effect immediately upon its publication August, in the year of Our Lord, Two Thousand
in two (2) newspapers of general circulation. and Four.

DIRECTING THE INSTITUTIONALIZATION OF A GOVERNMENT ENERGY MANAGEMENT PROGRAM

(GEMP)

WHEREAS, under Section 2 of R.A. No WHEREAS, to maintain the Government’s

7638, otherwise known as the “Department credibility in encouraging the adoption of
of Energy Act of 1992“, it is declared the energy efficiency and conservation measures
policy of the State to ensure a continuous, by the private sector, the Government shall
adequate, reliable, and economic supply of lead by example implementing its own energy
energy through, among others, the judicious management program;
conservation, renewal and efficient utilization
of energy, to keep pace with the country’s WHEREAS, Section 1 (b) (2) of the
growth and economic development; Administrative Order No. 103 requires the
reduction of at least ten percent (10%) in the
WHEREAS, it is imperative that long-term cost of the consumption of fuel, water, office
measures be adopted to minimize if not supplies, electricity and other utilities. For
forestall any adverse effect of the crude price this purpose, agencies are hereby authorized
increases on the country’s essential economic to install and use energy-efficient lights and
activities; fixtures, and optimize the utilization facilities
especially for long-distance communication.
WHEREAS, to mitigate the ill effects of
energy use on the environment, there is NOW, THEREFORE I, GLORIA MACAPAGAL-
a compelling need for the Government to ARROYO, President of the Philippines, by
undertake a program promoting the judicious virtue of the powers vested in me by law, do
use of energy resources through intensified hereby order:
conservation efforts and efficient utilization
thereof; SECTION 1. The Government Energy
Management Program (GEMP). –
WHEREAS, the Government’s five- (5)
point energy reform agenda on energy 1.1 GEMP Goal
independence aims to achieve sixty (60)
percent self-sufficiency level by 2010 and thus The Government shall aim to reduce its
shield the country from the price volatility monthly consumption of electricity (in
of imported energy through the enhanced kilowatt-hours) and petroleum products
development and use of indigenous oil and (in liters) by at least ten percent (10%)
gas reserves, renewable energy, alternative through the implementation of the
fuels, strategic alliances with other countries, GEMP for a minimum period of three (3)
and effective implementation of a National years starting January 2005.
Energy Efficiency and Conservation Program
(NEECP); 1.2 Methodology

(a) Electricity Efficiency and Natural Gas (CNG), Ethanol, and
Conservation other biofuels, among others as
certified by the DOE.
(1) Each government entity
is mandated to adopt and (3) There shall be a moratorium on
implement an electricity the purchase of new government
efficiency program to reduce vehicles for six (6) months
electricity consumption by after the effectivity of this
ten (10) percent of it average Administrative Order, provided
monthly consumption for the 1st that once the moratorium has
semester of 2004. been lifted, purchase of new
government vehicles shall be
(2) Each Government, thru limited to engine displacements
the Department of Budget of no more than 1600 cc and
and Management (DBM) in 2500 cc for gasoline and diesel
coordination with DOE, shall engines, respectively.
institute the government
procurement guidelines on (4) Government vehicles shall
energy efficient lighting and be used for official business
appliances based on DOE- purposes only.
certified energy efficiency rating
(Attachment A). 1.3 Compliance

(3) Each government entity may (a) Energy Surveys and Audits
utilize or avail itself of the
Department of Energy (DOE) (1) Each government entity shall
approved and other acceptable conduct a prioritized survey by
energy efficiency measures in requiring walk-through audits
order to effectively comply with in all its facilities. The DOE shall
this Administrative Order. provide technical assistance to
all government entities for this
(b) Efficiency and Conservation in Fuel purpose.
Use of Government Vehicles
(2) Each government entity, upon
(1) Each government entity establishing its priorities, shall
is mandated to adopt and conduct detailed energy audits
implement a program that will either through the services of
reduce its fuel consumption for the DOE or an Energy Service
transport by ten (10) percent of Provider (ESP).
its average monthly consumption
for the 1st semester of 2004. (b) Energy Conservation Officer

(2) The ten percent (10%) fuel (1) Each government entity shall
reduction may be achieved designate a senior official as
thru substitution or blending its Energy Conservation Officer
of petroleum products with (ECO).
alternative fuels, such as
Coco-Methyl Ester (CME) in (2) The ECO shall be responsible
accordance with the provisions for his/her government entity’s
of MC No. 55, Compressed compliance with the provisions
of this Administrative Order, (a) Each government entity shall
as well as the development allocate appropriate amount from its
and implementation of energy approved-budget for the years 2004
efficiency and conservation and 2005 for the implementation of
measures. its prioritized and planned energy
management program.
(c) Implementing Guidelines, Rules and
Regulations (b) Each government entity shall
include in its budget preparation
The DOE, with the concurrence the necessary funds for it energy
of DBM, shall promulgate the management program from 2006
necessary implementing guidelines, onward.
rules and regulations to ensure
compliance with the provisions of 3.2 Use of Energy Savings
this Administrative Order.
At least 50% of the savings to be realized
SECTION 2. Inter-Agency Coordination. – through the GEMP may be used by the
government entity for the improvement
The DOE shall establish an inter-agency of energy efficiency in its facilities, subject
coordination among all government entities to the guidelines to be promulgated by
to ensure compliance with this Administrative the DOE and DBM.
Order, including the conduct of appropriate
information, education and communication SECTION 4.Effectivity. –
campaign.
This Administrative Order shall take effect
SECTION 3. Funding. – immediately.

3.1 Source of Funds Done in the City of Manila, this 25th day
of October, in the year of Our Lord, Two
Thousand and Four.
ADMINISTRATIVE ORDER NO. 110-A

AMENDING ADMINISTRATIVE ORDER NO. 110 S. 2004 DIRECTING THE INSTITUTIONALIZATION OF
A GOVERNMENT ENERGY MANAGEMENT PROGRAM (GEMP)
WHEREAS, Administrative Order No. 110 guidelines to be promulgated by the DOE and
dated October 25, 2004 directed the DBM;
institutionalization of a Government Energy
Management Program (GEMP); WHEREAS, Section 3, Item 3.2 of Administrative
Order No. 110 only appropriates 50% GEMP
WHEREAS, Section 3, Item 3.2 of savings for the improvement of government’s
Administration Order 110 provides that energy efficiency, thereby limiting the use of
at least 50% of the savings to be realized the said savings for said specific purpose.
through the GEMP may be used by the
government entity for the improvement of WHEREAS, Administrative Order No. 135
energy efficiency in its facilities subject to the dated December 27, 2005 authorized the
grant of Collective Negotiation Agreement Philippines, by virtue of the powers vested in
(CNA) incentive to employees in government me by law, do hereby order:
agencies;
SECTION 1. Section 3, Item 3.2 of
WHEREAS, the grant of the CNA is in Administrative Order No. 110 is hereby
recognition of the efforts of labor and amended to read as follows:
management to achieve all planned targets,
programs and services approved in the “SECTION 3. FUNDING
agency’s budget at lesser costs;
xxx
WHEREAS, it has become necessary to
amend the above specific provision of “3.2. Use of Energy Savings
Administrative Order No. 110 to provide for
the needs of the government employees, “The savings to be realized
giving them non-economic benefits in the through the GEMP may be used
form of transportation (shuttle bus and by the government entity for the
service vehicles to and from the office) for improvement of energy efficiency,
their active participation and in appreciation subject to the guidelines to be
in their role in the realization of the GEMP; promulgated by the DOE and DBM,
and and also for the purchase of shuttle
buses and service vehicles for their
WHEREAS, the shuttle buses and service employees and officials subject to
vehicles made available to government the usual government auditing and
employees and officials will not only provide accounting rules and regulations.”
them safety and comfort, but will lessen their
travel time and expenses, thereby giving SECTION 2. This Order shall take effect
them more quality time to spend with their immediately.
families.
NOW, THEREFORE, I, GLORIA MACAPAGAL- March, in the year of Our Lord, Two Thousand
ARROYO, President of the Republic and Six.
IMPLEMENTING RULES AND REGULATIONS DIRECTING THE INSTITUTIONALIZATION

OF A GOVERNMENT ENERGY MANAGEMENT PROGRAM (GEMP)

Pursuant to Section 1.3 (c) of Administrative RULE I

Order (AO) No. 110 as amended and pursuant GENERAL PROVISION
to the policy objectives behind Administrative
Order Nos. 103 (s. 2004) and 126 (s. 2005) SECTION 1. Title – These Rules shall
aimed to address the increasing world be known as the Implementing Rules
oil prices through the adherence to the and Regulations (IRR) for Directing the
government’s energy conservation program, Institutionalization of a Government Energy
the following rules and regulations are hereby Management Program (GEMP).
adopted and promulgated:


SECTION 2. Purpose. – These Rules shall provisions of Administrative Order No. 103
provide guidelines on the operationalization (s. 2004), Administrative Order No. 110 (s.
and the institutionalization of the GEMP in 2004), Administrative Order 126 (s. 2005)
the Philippines in accordance with AO Nos. and this IRR, as well as the development and
103, 110, 110-A and 126. implementation of other energy conservation
measures.
SECTION 3. Scope. – This IRR shall cover the
roles and responsibilities of the Department “Energy Survey/Audit” is defined as the
of Energy (DOE), the Department of Budget verification, monitoring and analysis of the
and Management (DBM), the Department use of energy, including preparation of a
of Public Works and Highways (DPWH), technical report containing recommendations
the National Housing Authority (NHA), for improving energy efficiency with cost-
the Department of the Interior and Local benefit analysis and an action plan to reduce
Government (DILG), the Department of energy consumption to be provided to the
Trade and Industry (DTI), the Department of agency requesting audit.
Education (DepEd), the Philippine Information
Agency-Office of the Press Secretary (PIA- “Government entity” refers to all
OPS), the Department of Environment and departments, bureaus, agencies and
Natural Resources (DENR) and all government instrumentalities of the Philippine
entities in implementing the GEMP. Government, including Government-Owned
and/or Controlled Corporations (GOCCs) and
RULE II other government corporate entities (OGCEs)
DEFINITION OF TERMS and their subsidiaries, Government Financial
Institutions (GFIs), as well as state universities
SECTION 1. Definitions – The following and colleges (SUCs).
terms as used in this IRR shall be defined as
follows: “Government facility” means any building or
cluster of buildings, grounds, or structure, as
“Agency Rating” refers to the over-all rating well as any fixture or parts thereof, including
posted in the government entity’s premises the associated energy consuming support
showing the result of the Spot Check systems, which is constructed, renovated or
conducted by the Energy Audit Team (EAT) purchased in whole or in part for use by the
following its established rating scheme. Philippine Government. It shall also include
any building rented/leased in whole or in part
“Alternative Fuel” refers to biodiesel, for use by the Philippine Government.
bioethanol, natural gas, battery/cell,
hydrogen and automotive LPG, instead of “Government vehicle” refers to any motor
pure gasoline, diesel and kerosene. vehicle owned or registered in the name of a
government entity.
“Energy Audit Team” or “EAT” refers to the
group tasked to implement Administrative “Minimum Energy Performance
Order No. 103 (s. 2004), Administrative Order Specification (MEPS)” refers to the minimum
No. 110 (s. 2004), Administrative Order No. energy performance specification set by the
110-A (s. 2006), and Administrative Order No. Department of Trade and Industry-Bureau
126 (s. 2005). of Product Standards (DTI-BPS) for specific
lighting products.
“Energy Conservation Officer” or “ECO”
refers to a Senior Official who is officially “Spot Check” is the conduct of an
designated by Head of Agency concerned unannounced inspection of any government
to ensure the agency’s compliance with the entity or facility for the purpose of, but
not limited to, checking, monitoring and (6) Use of alternative fuels in government
evaluating the energy consumption to verify vehicles, among others, to help achieve
if the energy conservation and efficiency at least ten percent (10%) fuel reduction
programs are being implemented. in transport fuel consumption; and

RULE III (7) Periodic review of the effectiveness of
ENERGY CONSERVATION PROGRAMS the energy efficiency and conservation
program to include, but not limited to,
SECTION 1. Formulation of Energy the phased-in replacement program
Conservation Programs. – In accordance for lighting in existing or renovated
with the policy of the government to promote government facilities.
the judicious and efficient utilization of
energy resources, an Energy Conservation SECTION 2. Energy Audit Team (EAT). – For
Program (ECP) shall be formulated by the proper and effective implementation
each government entity to include energy of the government’s ECP and austerity
conservation measures, target savings, motor measures, an EAT is hereby constituted
vehicle inventory and other strategies. In composed of an Undersecretary of the DOE
the development of the ECP, the following and a representative from the Office of the
strategies must be adopted: President (OP).

(1) Aggressive promotion of energy (1) The EAT shall be assisted by the following
conservation and energy efficient units of DOE:
technology through the conduct of
appropriate information, education (a) Energy Utilization Management
and communication campaign, energy Bureau;
audits/surveys, and spot checks without
prejudice to the employees/officials’ (b) Energy Research and Testing
productivity and performance; Laboratory Services;

(2) Purchase and use of appliances and (c) Information Technology and
equipment to be selected only from the Management Services; and
list of DOE-certified efficient products as
posted in the DOE website and as may be (d) Energy Policy and Planning Bureau.
endorsed by DOE through other means,
whenever applicable; (2) The EAT shall have the following
functions:
(3) Adherence to the provisions of the
National Building Code (PD 1096), (a) Conduct energy efficiency seminars,
particularly on the implementation of the energy surveys, audits and spot
“Guidelines for the Energy Conserving checks;
Design of Buildings and Utility Systems”;
(b) Ensure that each government entity
(4) Adoption of energy efficiency concepts designates a senior official as its
in the procurement practices of the ECO who will be responsible for the
government; development and implementation of
energy efficiency and conservation
(5) Formulation of plans and programs measures;
to achieve at least ten percent (10%)
reduction in electricity consumption; (c) Liaise with local government units
and encourage them to implement
energy efficiency and conservation (2) The following measures shall be
measures consistent with AO Nos. implemented by all government entities
103, 110, 110-A and 126; for particular appliance, equipment and
accessories:
(d) Coordinate with the ECOs for the
proper and effective implementation (a) Operate air-conditioning systems
of energy efficiency measures; (unitary type or centralized) as
follows:
(e) Require ECOs to submit monthly
electricity and fuel consumption (i) Limit their operation/use to six
reports; (6) hours, preferably from 9:00
am to 4:00 pm. The operation/
(f) Post in a conspicuous place the use of air-conditioning systems
Agency Rating as a result of the Spot may be extended to a maximum
Check it has conducted, following duration of eight (8) hours
the rating scheme as shown in Annex during summer months (March
“A”; to May) upon the discretion of
the Head of Agency. In sensitive
(g) Validate the monthly and annual and customer service areas,
savings reports submitted by their operation/use beyond
government entities; eight (8) hours may be allowed:
Provided that the Head of the
(h) Follow-up on its findings of deficiency Agency supervising such areas
in each agency and ensure that these shall secure a Memorandum of
deficiencies are properly addressed; Exemption (MOE) from the EAT,
and, thereafter, upon verification,
the EAT shall issue MOE to the
(i) Adopt other measures not contrary concerned Agency;
to existing laws, rules and regulations
for the strict implementation of Sensitive areas refer to areas
the ECP and other energy-related with certain temperature
austerity measures. requirements such as classified
military facilities, Banko Sentral
The EAT shall prepare and submit a summary ng Pilipinas printing and minting
report to the President of the Philippines areas, medicine stock areas in
on or before the third (3rd) week following government hospitals, computer
the month under review, together with the server rooms and data bank
recommended sanctions, if any, for erring centers, among others.
government entities.
(ii) Set thermostat control to
SECTION 3. Efficiency and Conservation in achieve room temperature of
Electricity Use. – 25°C;

(1) Each government entity shall adopt and (iii) Set at fan mode from 12:00 noon
implement an electricity efficiency and to 1:00 pm; and
conservation program to reduce monthly
electricity consumption by at least ten (iv) Observe regular maintenance
(10%) percent benchmarked on the servicing and regular cleaning
average monthly consumption during the and replacement of filters as
1st semester of 2004; necessary.
(b) Electric fans, blowers and other (1) Each government entity shall adopt and
cooling devices may be used during implement a program that will reduce its
the 12:00 noon to 1:00 pm break fuel consumption by at least ten (10%)
period in lieu of air-conditioning percent benchmarked on the average
units; monthly consumption during the 1st
semester of 2005.
(c) Mandatory replacement of:
(2) The following measures shall be
(i) All 40 watt fluorescent lamp
immediately implemented by all
tubes with 36 watt or less slim
government entities for its vehicles:
type lamp tubes;

(ii) All 20 watt fluorescent lamp (a) Use/purchase or lease of vehicles
tubes with 18 watt or less slim capable of using Alternative Fuel;
type lamp tubes;
(b) Use of biodiesel products that
(iii) All rapid start electromagnetic comply with the Philippine National
ballasts with preheat type Standard (PNS 2020:2003) by
electromagnetic ballasts or blending a DOE-accredited biodiesel
electronic ballasts; and product with the diesel to comply
with one percent (1%) Coco-Methyl
(iv)
All incandescent bulbs with
Ester (CME) for use in all diesel-fed
compact fluorescent lamps
vehicles, pursuant to Memorandum
(CFLs);
Circular (MC) No. 55, series of 2004;

and
(d) Lights shall be turned off during

lunch breaks and after office hours,
(c) Adoption of the maintenance and
except in offices where continuous
driving tips indicated hereunder;
work or service to the public is being

conducted;
(i) Proper inflation and alignment

of tires and proper alignment
(e) Computers are strictly for official use
and balancing of wheels;
only and shall be shut down when

not in use; and
(ii) Periodic/regular oil change and

oil filter replacement;
(f) Elevators shall be programmed to

bypass the 2nd floor or, if possible,
(iii) Regular engine tune-up and
set to service alternate floors. A
replacement of air and fuel
sign to this effect shall be placed
filters;
conspicuously at the entrance of

the elevator for the proper guidance
(iv) Proper scheduling of daily trips
of agency employees and visitors:
to avoid unnecessary short trips;
Provided, that the physically–

challenged and those with heavy
(v) Smooth/moderate acceleration
loads shall not be prevented from
of vehicles and driving at a steady
using the elevator to reach each
pace to avoid unnecessary and
floor.
repetitious speeding up and

slowing down;
SECTION 4. Efficiency and Conservation in

Fuel Use of Government Vehicles. –
(vi) Strict prohibition on idling of

engines when vehicle is parked;
and SECTION 2. Functions of Energy Conservation
Officer. – The ECO, who is responsible for the
(vii) Prohibition on overloading of effective implementation and administration
vehicle. of energy conservation and efficiency program
of the government entity concerned, shall
(3) To develop a more dynamic and effective have the following duties and responsibilities:
program for the rational use of energy,
the following acts are hereby prohibited: (1) Prepare, formulate and submit
for approval to the Head of the
(a) The use of government vehicles for government entity the design, plan
purposes other than official business: and implementation, monitoring and
Provided, that in every case, the trip evaluation scheme for the ECP consistent
ticket authorizing the use of the with the provisions of AO Nos. 103, 110,
vehicle shall be displayed on the 110-A and 126 and this IRR;
windshield or in a conspicuous place
on the vehicle: Provided, further, (2) Submit to the EAT not later than the 15th
that vehicles used by intelligence day of January of each year the approved
and investigative agencies of the annual ECP. The ECP shall include energy
government shall not be covered by conservation measures, target savings,
this provision; motor vehicle inventory, and other
strategies as stated in Rule III, Section 1 of
(b) The use of government vehicles on this IRR, the total annual electricity and
Saturdays, Sundays, legal holidays, fuel consumption and savings for the one
or out of the regular office hours or (1) year period covering September 2005
outside the route of the officials or – August 2006 and every year thereafter;
employees authorized to use them,
or by any person other than such (3) In case of modification at any point /
official or employee, shall, unless time of the year, the revised ECP must
properly authorized, be prima facie be resubmitted to EAT, which shall
evidence of the violation of this likewise include a list of energy efficient
paragraph. equipment/materials /devices, and/or
service vehicles to be procured or already
RULE IV procured; and
DESIGNATION OF
ENERGY CONSERVATION OFFICER (4) Provide regular update to contain
monthly breakdown on the Energy
SECTION 1. Designation of Energy Performance of the government entity,
Conservation Officer (ECO). – To fully address utilizing the Electricity Consumption
the thrust of government’s program on Report Form attached as Annex “B1”
energy conservation and efficiency, the Head and the Fuel Consumption Report Form
of each government entity shall designate a attached as Annex “B2”, and to submit a
senior official as its ECO. report to the EAT not later than the 15th
day of the month following the period to
The names of the designated ECOs must be be reported.
submitted to the DOE through the EAT within
one (1) month upon the effectivity of this IRR RULE V
and updated in the event of any change in the SAVINGS
ECO designate.
SECTION 1. Source of Savings. –
Pursuant to AO Nos. 103, 110, 110-A, and 126,
all government entities are required to reduce (a) Gasoline
their monthly consumption for electricity (in
kilowatt-hours) and petroleum products (in Monthly Savings in Gasoline (Liters)
liters) by at least ten percent (10%) through = Jan. to June 2005 Ave. Monthly
the implementation of the GEMP. The result Gasoline Consumption less Monthly
of the reduction shall be the government Gasoline Consumption.
entity’s/government facility’s corresponding
savings. To compute for the equivalent Peso
Savings, multiply the monthly liters
SECTION 2. Computation of Savings in Energy savings in gasoline by the current
Efficiency and Conservation. – average gasoline rates per liter (P/
liter).
(1) Savings from Electricity Use. – The
amount of savings in kilowatt-hour Monthly Savings in Gasoline (liters.) x
(kWh) during the reporting month shall peso/liter equivalent for that period
be equivalent to the reduction in the = equivalent Peso Savings
monthly electricity consumption as
benchmarked on the average monthly (b) Diesel
electricity consumption for the 1st
semester of 2004. Monthly Savings in Blended
Diesel (Liters) = Jan. to June 2005
Monthly Savings in Electricity, kWh Monthly Diesel Consumption less
= Jan. to June 2004 Ave. Monthly Present Month’s Blended Diesel
Electricity Consumption less Monthly Consumption.
Electricity Consumption.
To compute for the equivalent
To compute for the equivalent Peso Peso Savings, multiply the monthly
Savings, multiply the monthly kWh blended diesel in liters savings in
savings in electricity by the current diesel by the current average diesel
average electricity rates per kWh (P/ rates per liters (P/liters).
kWh).
Monthly Savings in Blended Diesel
Monthly Savings in Electricity (kWh) (liters.) x peso/liter equivalent for
x Peso/kWh average rate for that that period = equivalent Peso Savings
period = equivalent Peso Savings
The Annual saving shall be the
The Annual Saving shall be the cumulative saving for the twelve-
cumulative saving for the twelve- month period
month period
Σ Monthly savings for 12 months =
Σ Monthly savings for 12 months = Annual Savings (Peso)
Annual Savings (Pesos)
Total Savings (P) = (Annual Electricity
(2) Savings from Fuel Use. – The amount Savings + Annual Fuel savings)
of savings in liters during the reporting
month shall be equivalent to the reduction SECTION 3. Allowable use of the ten percent
in the monthly fuel consumption as (10%) savings. – Consistent with the
benchmarked on the average monthly provisions of Section 3.2 of Administrative
fuel consumption for the 1st semester of Order No. 110, as amended by Section 1 of
2005. Administrative Order No. 110-A, the use of
accumulated savings from the twelve-month Recognition in order to motivate and inspire
period starting September 1, 2005 and every public servants to help implement the ECP.
year thereafter for purposes stated in Section Hereunder are the criteria for the conferment
4 below shall be allowed as follows: of awards:

(a) For government entities that failed to (1) Effectiveness of strategies employed;
attain the required minimum ten percent
(2) Level of energy savings in fuel and
(10%) savings, the use of its savings shall
electricity;
be limited to only fifty percent (50%) of
their accumulated savings in electricity (3) Accurateness and clarity of the report;
consumption (in kWh) or petroleum
products (in liters). (4) Completeness of report; and
(5) Promptness in submitting report.
(b) For government entities which attained
ten percent (10%) savings or more, they SECTION 2. Incentives. – A government
may be allowed to use one hundred entity/government facility which has attained
percent (100%) of their accumulated efficient level for its energy facilities and
savings in electricity consumption (in equipment, as well as supplies, may set aside
kWh) or petroleum products (in liter). and use succeeding/remaining equivalent
Annual Peso Savings to continuously maintain
SECTION 4. Use of generated savings. – the efficient operation of the building/
Upon verification and recommendation of facilities upon the discretion of the Agency
the EAT, generated savings shall be utilized Head. Thereupon, it shall submit copies or
to finance improvement in energy efficiency documentation to the EAT on the activities
of the government entity/facility after which, made on the use of the incentives.
succeeding/remaining equivalent Annual
Peso savings may be used to give benefits and RULE VII
incentives to the employees in the following INTER-AGENCY COORDINATION
order of priority:
SECTION 1. Inter-Agency Coordination. The
(1) Upgrade/Lease/Purchase of vehicles to
DOE, DBM, DTI, DENR, DPWH, NHA, DepED,
be used by employees as shuttle service;
DILG and PIA-OPS, shall have the following
(2) Purchase/Lease of service vehicles to roles and responsibilities:
replace the old and inefficient units
(1) The DOE, through the Energy Utilization
assigned to officials;
and Management Bureau (EUMB), shall
(3) Citations or recognitions; and serve as lead unit in the implementation
of energy efficiency and conservation
(4) Granting of other benefits to employees, program. Further, EUMB, through the
consistent with the Collective Negotiation Energy Research and Testing Laboratory
Agreement (CNA); (ERTLS), and in cooperation with DTI,
shall continue to oversee and implement
RULE VI the Energy Labeling Program for lamps
SYSTEM OF REWARDS and ballasts.

SECTION 1. Recognition. – Government (2) The DBM, through its Procurement
entities which attained at least ten Service, shall assist the government
percent (10%) savings in electricity and entities in the procurement of energy
fuel consumption shall be awarded by the efficient supplies and equipment based
DOE, through the EAT, with a Certificate of on the DOE certified specifications and/
or ratings. and print media, including production
and distribution of materials related and
(3) The DTI shall, in consultation with consistent with the provisions of this
appropriate trade and industry IRR, that can be adopted at the family,
associations, develop voluntary energy community and industry level.
conservation programs through
agreements with their respective All agencies mentioned above shall submit
members, which will target levels of monthly electricity and fuel consumption
reduction in electricity and petroleum reports every 15th day of the month
products consumption following the following the period to be reported and
provisions in this IRR. It shall likewise, submit the annual ECP not later than the 15th
provide complementary policies and day of January and every year thereafter, as
activities to ensure that lighting products stipulated under Rule IV, Section (2) item (2)
and other devices for that purpose and (4) of this IRR.
shall meet the specifications under the
Philippine National Standard (PNS), as RULE VIII
well as applicable MEPS for consumer OTHER PROVISIONS
protection.
SECTION 1. Compliance and Sanctions. –
(4) The DENR shall, in coordination with Non-compliance with the provisions of AO
appropriate law enforcement agencies, Nos. 103, 110, 110-A, 126 and 183 or any
enforce strictly the smoke-belching law of the provisions of this IRR shall subject
for all vehicles. In addition, the DENR, any official to administrative sanctions as
through its Environmental Management provided by applicable laws and other rules
Bureau (EMB) shall promulgate/ and regulations.
implement policies consistent with
proper appliance (aircon, other energy SECTION 2. Amendment. – The DOE, with the
fixtures) and lamp waste management. concurrence of DBM, may amend or modify
these Rules as may be deemed necessary.
(5) The DPWH, in coordination with NHA
and DepEd, shall implement the energy SECTION 3. Separability Clause. – If any provision
efficient building on government housing of this IRR is declared unconstitutional,
and school buildings respectively, in the same shall not affect the validity and
accordance with the Guidelines for the effectivity of the other provisions hereof.
Energy Conserving Design of Buildings
and Utility Systems and all other SECTION 4. Effectivity. – This IRR shall take
government buildings/facilities and other effect fifteen (15) days after publication in a
relevant infrastructure development newspaper of general circulation.
projects.
(6) The DILG shall devise action plans to May, in the year of our Lord, Two Thousand
encourage the Local Government Units and Eight.
(LGUs) on the use of efficient energy
systems, including lighting and lighting ANGELO T. REYES
products in their facilities. DOE Secretary

(7) The PIA-OPS shall launch a nationwide ROLANDO G. ANDAYA, JR.
information dissemination campaign on DBM Secretary
energy conservation through broadcast

MEMORANDUM ORDER NO. 185
For the proper and effective implementation 3. Liaise with local government units and
of the government’s energy conservation encourage them to implement energy
program and austerity measures under efficiency and conservation measures
Administrative Order No. 103 (s. 2004), proposed by the Department of Energy.
Administrative Order No. 110 (s. 2004) and
Administrative Order No. 126 (s.2005), an 4. Coordinate with the Energy Conservation
Energy Audit Team is hereby constituted Officers for the proper and effective
composed of Senior Deputy Executive implementation of energy measures
Secretary Waldo Q. Flores of the Office of the and require them to submit a monthly
President and Undersecretary Peter A. Abaya report of the measures taken and the
of the Department of Energy. The Energy results thereof. The monthly report shall
Audit Team has the following functions, be submitted not later than the 15th day
among others: following the reporting month.
1. Conduct energy surveys and audits, 5. Prepare and submit a summary report
or provide technical assistance for the to the President, through the Executive
conduct of such surveys and audits, Secretary, within five (5) days after the
in all national government agencies last reporting day.
(NGAs), including state universities and
colleges (SUCs), government-owned 6. Adopt other measures not contrary to
and controlled corporations (GOCCs), existing laws, rules and regulations for
government financial institutions (GFIs), the strict implementation of the energy
and other government corporate entities conservation program and austerity
(OGCEs) and their subsidiaries, and other measures.
instrumentalities under the Executive
Department. This Order shall take effect immediately.
2. Ensure that each government entity

designate a senior official as its Energy (Sgd.) GLORIA MACAPAGAL-ARROYO
Conservation Officer who will be Manila, August 23, 2005
responsible for the government entity’s
compliance with the provisions of AO 110
and AO 126 as well as the development
and implementation of energy efficiency
and conservation measure.

DIRECTING THE USE OF ENERGY-EFFICIENT LIGHTING/LIGHTING SYSTEMS (EELs) IN GOVERNMENT

FACILITIES (PALIT-ILAWPROGRAM)
WHEREAS, under Section 2 of R.A. No. environmental improvement;

7638, otherwise known as the “Department
of Energy Act of 1992”, it is the declared NOW, THEREFORE, I, GLORIA MACAPAGAL-
policy of the State to ensure a continuous, ARROYO, President of the Republic of the
adequate, reliable, and economic supply of Philippines, by virtue of the powers vested in
energy through, among others, the judicious me by law, do hereby order the adoption of
conservation, renewal and efficient utilization energy efficient lighting/lighting systems in
of energy, to keep pace with the country’s government.
growth and economic development and to
rationalize, integrate, and coordinate the SECTION 1. Mandatory Use of EELs. – All
various programs of the Government towards departments, bureaus, offices, agencies
self-sufficiency and enhanced productivity in and instrumentalities of the Philippine
power energy without sacrificing ecological Government, including National Government
concerns; Agencies, State Universities and Colleges,
Government Owned and Controlled
WHEREAS, the conservation and efficient Corporations, Government Financial
utilization of energy is one of the major Institutions, and other Government Entities
strategies of the Government to realize energy are hereby mandated to use EELs in all
self-sufficiency and reduce environmental buildings and facilities, as well as in all projects
impacts of energy generation and utilization financed by the Government, such as housing
as instituted in the Philippine Energy Plan and school building projects.
(PEP) and the National Energy Efficiency and
Conservation Program (NEECP); 1.1 The Energy Conservation Officer (ECO)
of each government entity/agency shall,
WHEREAS, Administrative Order Nos. 103, within one month from the effectivity of
110 and 126 mandate a ten percent (10%) this Administrative Order, formulate a
reduction in energy consumption in all phased-in lighting replacement program
government offices, including the designation in their respective existing facilities to
of an Energy Conservation Officer; be submitted to the DOE; unless the
concerned government entity/agency
WHEREAS, the use of energy efficient already uses EELs in which case it shall
lighting systems (EELs), through the Palit- submit a compliance report to the DOE.
Ilaw Program, aims to promote lighting The phased-in lighting replacement
efficiency considering that lighting is used program shall be implemented within
by all government facilities and EELs are the one year from the effectivity of this
easiest to install/retrofit among other energy Administrative Order.
efficient equipment and fixtures;
SECTION 2. Cooperating Agencies. – The
WHEREAS, the adoption of EELs as a standard Department of Energy (DOE), through the
lighting system in government facilities will Energy Utilization and Management Bureau
contribute to the realization of energy savings (EUMB), shall take the lead in implementing
as well as pollution prevention and overall this Administrative Order and shall take
appropriate measures and necessary actions 2.6 The Philippine Information Agency
to ensure compliance with the same. The (PIA) shall include energy efficiency and
DOE shall be supported by the following conservation in lighting in its media
government agencies and other agencies as campaigns.
may later be identified:
SECTION 3. Implementation. – The DOE
2.1 The Department of Trade and Industry is hereby authorized to issue additional
(DTI) shall provide complementary implementing rules and regulations (IRR)
policies and activities to ensure that from time to time, as may be necessary, to
lighting products meet the specifications implement this Administrative Order.
under the Philippine National Standards
(PNS) as well as applicable Minimum SECTION 4. Use of Savings. – Savings
Energy Performance Standards (MEPS) generated from the use of EELs may be utilized
for consumer protection. as follows in accordance with Administrative
Order No. 110, as amended by Administrative
2.2 The Department of Budget and Order No. 110-A and its IRR:
Management (DBM) shall facilitate the
approval of necessary funds for the 4.1 For Government entities that failed to
implementation of this Administrative attain the required minimum ten percent
Order and, through the Government (10%) savings, the use of its savings shall
Policy and Procurement Board (GPPB) and be limited to only fifty percent (50%) of
Procurement Services, allow only energy its accumulated savings in electricity
efficient lighting products for government consumption (in kWh) or petroleum
procurement, with exceptions provided products (in liters);
for under the Guidelines for Energy
Conserving Design of Buildings. 4.2 For government entities that have
attained ten percent (10%) savings or
2.3 The Department of Environment and more may be allowed to use one hundred
Natural Resources (DENR), through percent (100%) of its accumulated savings
the Environment Management Bureau in electricity consumption (in kWh) or
(EMB), shall promulgate/implement petroleum products (in liters); and
policies consistent with proper lamp
waste management. 4.3 Upon verification and recommendation
of EUMB, part of the generated savings
2.4 The Department of Public Works and can be utilized to finance improvements
Highways (DPWH) shall integrate the use in energy efficiency.
of EELs in planning and development for
government buildings/facilities and other SECTION 5. Failure to follow the directives of
infrastructure development projects. this Administrative Order within 30 days from
effectivity thereof shall subject concerned
2.5 The Department of Interior and officials to administrative sanctions pursuant
Local Government (DILG), pursuant to existing laws, rules and regulations.
to its general supervision over local
government units (LGUs), shall strongly SECTION 6. Repealing Clause. – All orders,
encourage the LGUs to contribute to the circulars, rules and regulations and other
objective of this Administrative Order by issuances or parts thereof which are
using EELs in their facilities. inconsistent with the provisions of this
Administrative Order are hereby amended,
modified or repealed accordingly.

SECTION 7. Effectivity. – This Administrative Done in the City of Manila this 9th day of July,
Order shall take effect immediately upon in the Year of our Lord, Two Thousand and
publication in a newspaper of general Seven.
circulation.


ENJOINING ALL DISTRIBUTION UTILITIES TO SUPPLY ADEQUATE, AFFORDABLE, QUALITY AND
RELIABLE ELECTRICITY
WHEREAS, Section 2 of Republic Act No. 9136, (i)); and

also known as the “Electric Power Industry
Reform Act of 2001” or “EPIRA”, declared (e) “[t]o monitor private sector activities
as a policy of the state, among others, “[t] relative to energy projects in order
o ensure the quality, reliability, security and to attain goals of the restructuring,
affordability of the supply of electric power;” privatization, and modernization of the
electric power sector as provided for
WHEREAS, pursuant to Section 17 of EPIRA, under existing laws. Provided, that the
the Department of Energy has the mandate, Department of Energy shall endeavour
among others: to provide for an environment conducive
to free and active private sector
(a) “[t]o ensure the reliability, quality, and participation and investment in all energy
security of supply of electric power” (Sec. activities” (Sec. 37 (j));
37 (d));
WHEREAS, pursuant to Section 6 of EPIRA,
(b) “[t]o encourage private sector the “generation of electric power, a business
investments in the electricity sector and affected with public interest, shall be
promote development of indigenous and competitive and open”;
renewable energy sources” (Sec. 37 (e)
(i)); WHEREAS, pursuant to Section 47 (j) of
EPIRA, the National Power Corporation (NPC)
(c) [i]n consultation with other government “may generate and sell electricity only from
agencies, to promote a system of the undisposed generating assets and IPP
incentives to encourage industry [Independent Power Producer] contracts
participants, including new generating of PSALM Corp. and shall not incur any new
companies and end-users to provide obligations to purchase power through
adequate and reliable electric Supply” bilateral contracts with generation companies
(Sec. 37 (e)(iii)); or other suppliers”;

(d) “[t]o develop policies and procedures WHEREAS, pursuant to Section 23 of EPIRA,
and, as appropriate- promote a system or all distribution utilities, as defined in the law,
energy development incentives to enable “shall have the obligation to supply electricity
and encourage electric power industry in the least cost manner to its captive
participants to provide adequate capacity market subject to the collection of retail rate
to meet demand including, among duty approved by the Energy Regulatory
others, reserve requirements” (Sec. 37 Commission (ERC)”;

WHEREAS, pursuant to Sections 4 (nn) and 37 Ownership, Market Power Abuse and Anti-
(c) of EPIRA, the Department of Energy has Competitive Behavior” shall be strictly
formulated prepared and updated the ten- followed by all distribution utilities. The
year Power Development Program (PDP) in Department shall issue within (30) days from
coordination with generation, transmission effectivity of this Circular separate guidelines
and distribution utility companies, which for the preparation of the Distribution
indicated a critical reserve requirement Development Plan.
in various regions of the country in the
upcoming five years of the planning horizon; SECTION 3. Assistance to Electric
Cooperatives (ECs). – To assist the ECs in
WHEREAS, the Department of Energy their power supply contract negotiations,
through various communication programs the National Electrification Administration
has encouraged and campaigned for the (NEA) shall provide training programs to ECs
entry and removal of barriers to entry of and other necessary activities necessary
private sector participation in the generation to provide reliable and quality service to all
of electricity in line with the PDP; the consumers. Towards this end, NEA shall
submit to the Department within thirty (30)
NOW, THEREFORE, the Department of Energy days from the effectivity of this Circular the
is issuing this Circular to all distribution action plan to assist the ECs, to include,
utilities: but not limited to, financial management
services, funding arrangements and other
SECTION 1. Reiteration of State Policy. – All structures that will support the ECs ability to
distribution utilities must henceforth take enter into power supply contracts. Thereafter
cognizance and assume full responsibility the Department shall issue the appropriate
to forecast, assure and contract for the implementing guidelines for this purpose.
supply of electric power in their respective
franchise areas to meet their obligations as a SECTION 4. Enforcement. – Towards
distribution utility. achieving the objectives of EPIRA and this
Circular, any distribution utility which fails to
SECTION 2. Compliance. – While the NPC comply shall be immediately recommended
and the National Transmission Corporation or by the Department for appropriate sanction,
TRANSCO are pursuing government projects fines and/or penalties, including modification
to improve the supply and delivery of electric and revocation of certificates of public
power in the national grid, all distribution convenience and/or necessity, license or
utilities must submit to the Department permits of franchised distribution utilities, to
no later than 15th of March every year the the ERC, pursuant to Sections 45 (p) and 46
annual 5-year Distribution Development of EPIRA.
Plan pursuant to Section 4 (p), Rule 7 of
the Implementing Rules and Regulations of SECTION 5. Effectivity. – This Circular
EPIRA. The Distribution Development Plan shall take effect immediately a day after its
shall include, among others all abstract of posting in the Department’s website and
the terms and conditions of power supply complete publication in a newspaper of
contracts with NPC’s existing and available general circulation.
supply, and, where NPC’s supply is not
available and sufficient, the power supply Fort Bonifacio, Taguig, Metro Manila, 5
contracts with private power producers to December 2003.
augment the power supply in their franchise
areas and to assure that power interruptions VICENTE S. PEREZ
are minimized. The proscription prescribed Secretary
under Section 45 of EPIRA on “Cross

PRESCRIBING THE GUIDELINES FOR THE FORMULATION OF A FIVE-YEAR DISTRIBUTION
DEVELOPMENT PLAN PURSUANT TO SECTION 2 OF DEPARTMENT OF ENERGY CIRCULAR NO.
DC 2003-12-011, ENTITLED “ENJOINING ALL DISTRIBUTION UTILITIES TO SUPPLY ADEQUATE,
AFFORDABLE, QUALITY AND RELIABLE ELECTRICITY”

WHEREAS, under Section 2 of Republic Act WHEREAS, there is an imperative need to

(RA) No. 9136, otherwise known as the institutionalize the formulation process of the
“Electric Power Industry Reform Act of 2001” DDP consistent with the policy and structural
or EPIRA, it is declared, among others, the reforms envisioned in the EPIRA;
policy of the State to ensure quality, reliability,
security and affordability of the supply of WHEREAS, in compliance with DOE Circular
electric power; No. DC 2003-12-011 issued on December
5, 2003, the DDP of a DU shall include,
WHEREAS, pursuant to Section 37 (c) of among others, an abstract of the terms and
EPIRA, the Department of Energy (DOE) is conditions of power supply contracts with
mandated to prepare and update annually National Power Corporation (NPC) existing
a Power Development Program (PDP) and and available supply, and, where NPC supply is
integrate the same into the Philippine Energy not available and sufficient, the power supply
Plan (PEP); contracts with private power producers to
augment the power supply in their franchise
WHEREAS, the PDP shall consider and areas and to assure that power interruptions
integrate the individual or joint development are minimized;
plans of the transmission, generation, and
distribution sectors of the electric power NOW, THEREFORE, FOR AND IN
industry, which are submitted to the DOE; CONSIDERATION OF THE FOREGOING
PREMISES, the DOE hereby promulgates the
WHEREAS, Section 23 of the EPIRA, required following Guidelines on the formulation of
distribution utilities (DUs), among other the five-year DDP of each DU:
functions, to prepare and submit to the DOE
their annual distribution development plans SECTION 1. Guiding Principles.
and in the case of electric cooperatives,
to submit such plans through the National In compliance with EPIRA and its IRR, these
Electrification Administration (NEA); Guidelines are issued for:

WHEREAS, it is provided under Section 4 (a) the integration of the consolidated DDP
(p), Rule 7 of the Implementing Rules and to the PDP and PEP which are prepared
Regulations of the EPIRA (EPIRA-IRR) that and updated annually;
DUs shall prepare and submit to the DOE an
annual five year-distribution development (b) the monitoring of private sector activities
plan (DDP) not later than the fifteenth (15th) relative to energy projects in order to
of March of every year for integration with attain goals of restructuring, privatization,
the PDP and PEP; and modernization of the electric power
industry;


(c) the encouragement of DUs to provide providing the required delivery services
adequate and reliable electric supply; in their respective franchised area/s.

(d) the provision of information, for (b) Strategies and/or approaches to attain
investment promotion and project the objectives. This component shall
prioritization; and identify and describe the strategies and/
or approaches that will guide the DUs in
(e) the determination of infrastructure their operation.
requirements to ensure reliability of
supply at the distribution level. (c) Technical and Economic Analyses.
This portion of the DDP shall present a
SEC. 2. Scope of Application. summary of the technical and economic
analyses in demand forecast, supply
These Guidelines shall apply to any “entity expansion plan, and expansion of the
that owns, operates, or controls one or more distribution system including the reactive
distribution systems such as but not limited power compensation plan and other
to”: distribution reinforcement plan. The
analyses shall make use of the forecasts
(a) Electric Cooperatives (ECs); and assumptions data. It should identify
operational limitations or constraints
(b) Privately-Owned Distribution Utilities; which may likely lead to problematic
areas in the future. It should also include
(c) Local Government Unit Owned-and- the following:
Operated Distribution Systems;
(i) Energy and Demand forecasts;
(d) Entities duly authorized to operate within
the economic zones (EZs); and (ii) Sub-transmission capacity expansion;

(e) Other duly authorized entities engaged in (iii) Distribution substation siting and
the distribution of electricity. sizing;

SEC. 3. Contents of the DDP. (iv) Distribution feeder routing and
sizing;
The DDP shall contain the following detailed
information: (v) Distribution Reactive Power
Compensation Plan; and
(a) Objectives. Consistent with the Five-
Year DDP of the DUs, this part shall (vi) Other Distribution reinforcement
provide a statement of the long-term plans.
and immediate objectives of the utility
to meet their obligations. The long- (d) Power Supply Contracts. This portion
term objective shall reflect the desired shall consist of the power supply
outcomes of the DUs while pursuing contract/s or agreement/s entered into
to improve the supply and delivery by the DUs with NPC and other generation
of electricity to the end-users in view companies. The contract shall contain
of the overall electric power industry terms and conditions which shall include,
sector. The immediate objectives, on but not limited to the following:
the other hand, shall indicate its targeted
short-term outcomes of the utility while (i) Contracted Demand/Energy;

(ii) Contract price; 6.2.5 (Preparation of Distribution
Development Plan) of the Philippine
(iii) Time/Day of Delivery; Distribution Code as a requisite by the
Distribution Management Committee
(iv) Load Factor; and
(DMC) and NEA.
(v) Price Settlement Mechanism
(d) It shall be required that the DDP to be
(e) Profile of Barangays to be energized. submitted to DOE shall have consistency
In this section, the reporting DUs shall in content with other DDP to be submitted
provide the complete list of barangays to DMC and NEA.
within the DUs’ franchise area scheduled
for energization during the five-year (e) The DDP preparation must, likewise,
planning period, as well as those ensure coherence with the data
barangays declared by DUs as unviable requirements of the existing and other
and unable to provide electricity service instrumentalities as may be found valid
within the next three (3) years. It shall in the future undertakings to ensure
also contain information on project cost, continuous supply of electric power to
fund source, power source/technology, end consumers.
and potential household connection,
among others. SEC. 5. Plan Formulation Process.

SEC. 4. Adoption and Procedures in the (a) The formulation of the plan starts
Preparation of DDP. formally with the issuance of these
Guidelines to all DUs and concerned
(a) The DOE hereby adopts the following government agencies. The DUs shall be
documents, namely: responsible for distribution planning,
including analyzing the impact of the
(i) Forms and Instructions for the connection of new facilities, expansion of
Preparation of the DDP of Philippine the distribution system, and identifying
Distribution Utility (Appendix A); and correcting problems on power
quality, system loss and reliability.
(ii) DOE-EPIMB Form-03-001 (Appendix
B); and (b) The DDP shall be prepared by each DU
with inputs from all users and other
(iii) DOE-EPIMB Form-03-002 (Appendix power sectors (as may be required). A
C). working group may be created by the
DUs, essentially to commence the initial
For purposes of uniformity of data, drafting of the DDP. Each DU shall be
all DUs shall be guided by Appendix responsible in the processing of the
A in accomplishing Appendix B and data provided by users and ensure
Appendix C. cohesiveness in forecasts and reliability
of the assumptions used.
(b) In addition, a separate sheet on power
supply contract incorporating the terms (c) After the completion of the first draft,
and conditions shall also be submitted. a DU may need to convene its own
committee that will provide guidance and
(c) The crafting of the Updated DDP oversee the preparation and subsequent
must take into account all the data endorsement of the DDP to DOE.
requirements prescribed under Chapter Subsequently, for validation purposes,

consultations with the concerned and modified accordingly.
end-users and stakeholders shall be
undertaken by the DU. SEC. 7. Effectivity.

(d) The DOE technical staff, whenever is This Circular shall take effect immediately a
needed, shall provide assistance to the day after its publication in a newspaper of
working group in the formulation of the general circulation.
DDP.

SEC. 6. Repealing Clause. VICENTE S. PEREZ, JR.
Secretary
Any rule or regulation inconsistent with the
provisions of this Circular is hereby repealed
CREATING A TECHNICAL WORKING GROUP TO TAKE ACTION IN ADDRESSING THE CURRENT POWER
ISSUES IN THE COUNTRY
WHEREAS, the Department of Energy (DOE) WHEREAS, the DOE is likewise mandated to
is mandated to supervise the restructuring take the initiative to devise policies, plans and
of the electric power industry pursuant to programs to achieve, among others, adequate,
Republic Act No. 9136, otherwise known reliable and affordable supply of electricity, in
as the “Electric Power Industry Reform cooperation with other government agencies
Act (EPIRA) of 2001”. The DOE is further and electric power industry participants and
authorized under Section 37 (e) (ii) of the electricity end-users, taking into consideration
EPIRA to facilitate and encourage reforms in first and foremost the welfare of the public
the structure and operations of distribution and promoting, at the same time, partnership
utilities for greater efficiency and lower costs; with the private sector;

WHEREAS, Section 2 (f) of EPIRA declares WHEREAS, the continuous rise in the
it a policy of the State to protect the public cost of electricity is affecting the welfare
interest as it is affected by the rates and of the people and causing unease to the
services of electric utilities and other marginalized sectors of the society;
providers of electric power;
WHEREAS, Her Excellency President Gloria
WHEREAS, the DOE under Section 5 (p) of Macapagal-Arroyo, during the Cabinet
R.A. 7638 or the DOE Act of 1992 as amended Meeting held on June 10, 2008, in recognition
by EPIRA is authorized to formulate rules and of the above circumstances, mandated all
regulations as may be necessary to implement government agencies to explore and adopt
the objectives of the said Law, as amended; the necessary measures to mitigate the
impact on increasing cost of electricity. To
WHEREAS, Section 1 (r), Rule 3 of the EPIRA- execute the said directives the DOE was
IRR provides that it is the function of the designated and authorized to take the lead
DOE to exercise such other powers as may and create a Technical Working Group (TWG)
be necessary or incidental to attain the to address the current issue on power rate
objectives of the EPIRA; reduction;

NOW, THEREFORE, in consideration of the SEC. 2. Scope of Responsibilities. – The TWG
foregoing, a TWG is hereby created for the shall take action on the issues that currently
aforementioned purposes and in accordance affect the power sector including, but not
with the terms provided in this Department limited to, the following:
Circular.
(a) Review the VAT on systems loss
SECTION 1. Mandate. – Pursuant to the
directive of the President during the Cabinet (b) Review of the systems losses/caps on
Meeting of June 10, 2008, there is hereby recoverable systems losses
created a Technical Working Group (TWG)
which the DOE Secretary shall lead and with (c) Review and renegotiation of power
the following government agencies together supply contracts
with the different stakeholders in the electric
power industry as members: (d) Review and rationalize Lifeline Policies
and Subsidies
(a) National Economic Development
Authority (NEDA) (e) Implementation of Open Access and
Retail Competition within Economic
(b) Department of Finance (DOF) Zones

(c) Department of Justice (DOJ) (f) Review of Wholesale Electricity Spot
Market (WESM) Rules
(d) Department of Trade and Industry (DTI)
(g) Study on proposed NPC flat rate of Php
(e) Department of Interior and Local 4.11 per kWh
Government (DILG)
(h) Implementation of Time of Use Rates
(f) Department of Budget and Management and Demand Side Management (DSM)
(DBM) Program at the distribution level

(g) Philippine Economic Zone Authority (i) Review power purchasing practices of
(PEZA) distribution utilities

(h) One representative each from the (j) Audit the operation of National Power
industrial sector, electric power industry Corporation and TransCo in relation to
associations, and other private sector rates
participants as determined by the TWG.
(k) Review and validate the operation of
Pursuant to Economic Managers Meeting Distribution Utilities in coordination with
held on 19 June 2008, all the Department the Energy Regulatory Commission
Secretary Members agreed to designate their
respective permanent representative of an (l) Implementation/rationalization of
Undersecretary level to the TWG. National Wealth Tax provisions on
benefits to Host LGUs/Regions
The TWG shall perform its mandate with
the objective of ensuring that the declared (m) Conduct diagnostics of the status and
policies of the State under EPIRA are properly manner of EPIRA implementation of all
achieved and implemented. relevant stakeholders


SEC. 3. Technical Support Staff. – The Department of Energy (DOE-EPIMB) shall
TWG shall also constitute an Inter-Agency act as the TWG Secretariat and shall provide
Technical Support Staff (IATSS) composed of administrative support and facilities for
representatives who have direct knowledge central coordination and monitoring of the
and expertise on the power issues, and duly TWG’s activities.
nominated by the TWG members. The IATSS
shall provide the necessary support and other SEC. 5. Meetings. – The TWG shall meet
related services to the TWG and coordinate regularly once every two weeks and as often
with the TWG Secretariat. as necessary with due consideration to the
exigency of the issues at hand.
To ensure continuity, the IATSS shall work on
a permanent basis for the duration of the SEC. 7. Budget. – The activities of the
implementation of the TWG’s program. They TWG and its sub-groups including the
shall be authorized to avail themselves of the TWG Secretariat shall be funded through a
facilities and communication networks of supplemental budget, duly approved by the
other member agencies of the TWG as may Department of Budget and Management.
be necessary and in addition to what they
may have. SEC. 8. Effectivity. – This Department Circular
shall take effect immediately upon publication
Whenever necessary, the TWG may also direct in two newspapers of general circulation.
other concerned agencies for additional
membership in the TWG Secretariat or Fort Bonifacio, Taguig City, 23rd day of June,
the IATSS. The TWG may likewise appoint 2008.
specific Leader of the Technical Support Staff
depending on the issues being addressed. ANGELO T. REYES
Secretary
SEC. 4. Secretariat. – The Electric Power
Industry Management Bureau of the

DIRECTING DOE ATTACHED AGENCIES, ALL ELECTRIC POWER INDUSTRY PARTICIPANTS, CONSUMERS
AND VARIOUS STAKEHOLDERS TO ADOPT AND IMPLEMENT CONTINGENCY MEASURES TO ENSURE
ADEQUATE AND RELIABLE ELECTRIC POWER SUPPLY IN VISAYAS GRID PARTICULARLY IN THE
ISLANDS OF CEBU, NEGROS AND PANAY
WHEREAS, Section 2 of Republic Act No. (i) Encourage private sector investments
9136, otherwise known as the Electric in the electricity sector and promote
Power Industry Reform Act of 2001 or EPIRA, development of indigenous and
declared as a policy of the State, among renewable energy sources;
others, to ensure the quality, reliability,
security and affordability of the supply of (ii) Facilitate and encourage reforms
electric power, to protect the public interest in the structure and operations
as it is affected by the rates and services of of distribution utilities for greater
electric utilities and other providers of electric efficiency and lower costs;
power, and to encourage the efficient use of
energy and other modalities of demand side `(iii) In consultation with other
management. government agencies, promote a
system of incentives to encourage
WHEREAS, pursuant to Section 37(h) of industry participants, including new
EPIRA, the Department of Energy (DOE) generating companies and end-users
exercises supervision and control over all to provide adequate and reliable
government activities relative to energy electric supply;
projects in order to attain the goals embodied
in Section 2 of Republic Act No. 7638, known xxx
as the “Department of Energy Act of 1992”,
as amended by EPIRA and that the DOE is (i) Develop policies and procedures and,
authorized under Section 5(k) thereof to as appropriate, promote a system
formulate rules and regulations as may be of energy development incentives
necessary to implement the objectives of said to enable and encourage energy
R.A. No. 7638, as amended; participants to provide adequate
capacity to meet demand including
WHEREAS, Section 37 of EPIRA further among others, reserve requirements;
provides for the following powers and
functions of DOE among others: xxx
“x x x (m) Formulate and implement

programs, including a system of
(d) Ensure the reliability, quality and security providing incentives and penalties,
of supply of electric power; for the judicious and efficient use
of energy in all energy-consuming
(e)
Following the restructuring of the sectors of the economy.”
electricity sector, the DOE shall, among
others: WHEREAS, the cooperation of all electric
power industry participants and various
stakeholders is indispensable in achieving a
reliable and secure supply of electricity in the Further, this Circular provides for the power
country; supply contingency measures in the Visayas
grid to include, but not be limited to, a supply
WHEREAS, the current power situation in augmentation program until new generating
the Visayas Grid demonstrated the need for capacities come on stream. This also serves
additional capacity as certified by the System as reiteration of the existing mandates of the
Operator (SO) of the National Transmission agencies and industry participants under the
Corporation to meet the increasing demand energy sector.
and reserve;
SECTION 2. Responsibilities. In addition
WHEREAS, the new generating plants in to the functions and responsibilities of the
the Visayas Grid as reported by the private agencies and entities under their respective
proponents to the DOE are expected yet to charters and under existing laws, rules and
come on stream by 2010 and 2011; regulations, they are further directed to
closely coordinate with the Department and
WHEREAS, the availability and adequacy of extend their full support in adopting the
electricity in the Visayas Grid at this time is following measures in the Visayas Grid. The
vested with public interest such that it is DOE being the agency tasked to supervise
incumbent upon the government to take the the oversee the electric power industry, shall
necessary measures to ensure the continuous be the lead agency in ensuring that all plans
operation of vital industries in the region by and programs to achieve the purposes of this
ensuring that there will be no interruptions in Circular are properly carried out.
the delivery of electricity;
NPC
NOW, THEREFORE, premises considered, the
DOE is issuing this Circular with the objective (a) Ensure that all power plants including
of ensuring that the declared policies of the those of its contracted IPPs shall operate
State under EPIRA are properly achieved and in accordance with the declared individual
implemented: dependable capacities. All maintenance
outage of power plants shall be in
SECTION 1. Scope and Coverage. This accordance with the Grid Operation and
Circular shall apply to all DOE-attached Maintenance Program (GOMP) under the
agencies namely, the National Power Philippine Grid Code. A report containing
Corporation (“NPC”), National Transmission the list of plants and their operational
Corporation (“TransCo”) through its System status should be submitted on a monthly
Operator, Power Sector Assets and Liabilities basis to DOE, through the Electric Power
Management Corporation (PSALM), Philippine Industry Management Bureau (DOE-
Electricity Market Corporation (PEMC), EPIMB), with a copy furnished the SO and
National Electrification Administration Market Operator (MO).
(“NEA”), Philippine National Oil Company
(PNOC) and relevant Visayas stakeholders (b) Secure oil-based power plants/IPPs to
such as Distribution Utilities (DUs) including meet the average required 30-day fuel oil
Electric Cooperatives (ECs) in the Visayas grid, inventories/supply. For this purpose, oil-
independent Power Producers (IPPs) or other based power plants/IPPs shall submit to
power generation companies and major DOE-EPIMB, on a monthly basis, a report
power users, shall collaborate in ensuring on fuel inventory based on typical load
the provision of adequate and reliable supply dispatch and fuel consumption.
electric power in the Visayas Grid.

(c ) Provide an average 45-day coal inventory PSALM
in all coal power plants. For this purpose,
an inventory report should be submitted (a) Determine, together with DOE and
to DOE-EPIMB on a monthly basis NPC, if there is a resulting instability in
based on typical load dispatch and fuel the supply of power in the continued
consumption. execution of the current privatization
program being implemented by PSALM
(d) Guarantee the readiness of all oil-based inasmuch as the 70% of NPC’s generating
power plants for operation; assets has been bidded out. This is for
purposes of Section 71 of EPIRA.
(e) Inform and update NPC customers
on the power supply situation, and (b) Coordinate the required operation of
the corresponding load curtailment disposed assets in the Visayas Grid with
schedules. the new owners, as the case may be.
TransCo/National Grid Corporation of the NEA

Philippines (NGCP)
(a) Inform properly the ECs of the situation
(a) Implement maintenance of major and its possible impact to the system.
transmission line/s and substation Towards this end, NEA shall render
equipment that will add to load limitation appropriate assistance to the ECs in
to generating plan/unit only during ensuring their readiness to (i) respond to
weekends and non-working holidays, any event arising from the problem and
and perform system tests and Ancillary (ii) take appropriate measures to mitigate
Services certification tests only during the problem by entering into any power
weekends and non-working holidays. A supply contracts and/or (iii) assist ECs in
monthly report should be submitted to the development of available renewable
DOE for this purpose. energy sources.
(b) Effect load curtailment in distribution (b) Advise ECs with customers having self-
utilities (private utilities and ECs) without generating capability to effect necessary
specific contracts or supply arrangements preparations to ensure readiness of the
with NPC/PSALM and other generation embedded generating sets participating
companies. For this purpose, the “no in the supply augmentation program of
contract, no connection” policy shall be the government.
strictly enforced.
(c ) Assist ECs in promoting energy
(c ) Ensure that the manual load dropping conservation measures for the electricity
schedule is updated and in place. consumers.
(d) Enforce strictly the disconnection (d) Submit monthly reports to DOE on the
policy, in coordination with NPC Report status of the regular activities undertaken
immediately to the DOE Secretary and together with the ECs in the performance
the DOE designated focal person, in the of their responsibilities under this
most expedient manner available, if there Circular.
are any changes in the normal operation
of the power system. NEA is hereby directed to submit to DOE
within two weeks after the effectivity of
this circular a detailed plan and program
to implement its responsibility.
PEMC be implemented in the Visayas Grid
immediately subject to the following
(a) Continue with its preparations for the conditions:
possible launch of the commencement of
the commercial operations of the WESM (i) Consistent with the objectives of the
in the Visayas. government’s energy development
program and shall comply with
(b) Submit to the DOE a detailed plan the provisions of the EPIRA, its
to implement the transition to the implementing Rules and Regulations
commercial operations of the WESM. and, in applicable cases, the WESM
Rules.
DUs/ECs
(ii)
Include, among other things,
(a) Take cognizance and assume full mechanisms for participation
responsibility to forecast, assure and and provision of power supply by
contract for the supply of electric power embedded generators and other self-
in their franchise areas to meet their generation facilities; demand-side
obligations as distribution utility. participation such as the provision of
interruptible load as ancillary service;
(b) Limit their actual demand to their and the corresponding pricing and
contracted demand/load, particularly compensation mechanism and,
during peak hours. if appropriate, the provision of
incentives for participants.
(c ) Submit regularly to DOE the prescribed
Distribution Development Program (DDP) (iii) Specify the duration for the
in compliance with DOE Circular No. DC implementation of the Program, the
2003-012-011 to monitor the existing criteria or grounds for its termination.
available and future supply requirements.
(b) Upon approval by the DOE of the
(d) Submit to DOE customers having self- Program, PEMC, in coordination with the
generating capability to effect necessary NGCP-SO, shall be responsible for the
preparations to ensure readiness of their implementation of the same, and, either
generating sets in case of participation in individually or jointly, shall –
the Supply Augmentation Program of the
government. (i) Secure the necessary approvals and
comply with necessary regulatory
In addition, the DOE declares the following: requirements, including but not
limited to the approval by the Energy
SECTION 3. Supply Side Management. Regulatory Commission (ERC) and
A Supply Augmentation Program is hereby other relevant government agencies
introduced. on the implementation of the
Program or of any mechanism or
a) The PEMC, in coordination with NGCP/ procedure contained therein, such
SO, is hereby directed to formulate a as, but not limited, to scheduling,
comprehensive Supply Augmentation dispatch, pricing and compensation
Program (the “Program”) including methodologies.
the timetable of activities, which shall
be submitted for approval by the DOE (ii) Formulate rules, guidelines and
within two weeks from the effectivity procedures for the implementation
of this Circular. The Program shall of the Program, in consultation
with the electric power industry of renewable energy sources to ensure
participants. stability of power supply.
(iii) Establish the criteria, requirements SECTION 5. Demand Side Management.

and qualifications for participation in The Energy Utilization Management Bureau
the Program, and to register qualified of the DOE, in coordination with other
participants. concerned DOE units and relevant entities,
is hereby directed to develop a market-
(iv)
Establish the provision of the
oriented demand side management program
necessary infrastructure, facilities
which shall likewise be submitted to the DOE
and equipment including
Secretary for approval.
development of protocols or any
mechanism as may be necessary
All electric power stakeholders herein
to implement the Program. For
mentioned are encouraged to adopt the
this purpose, secure the necessary
demand side management program to be
regulatory approvals for the cost
developed as prescribed herein including,
recovery mechanism by NGCP-SO
but not limited to, the engagement of energy
and PEMC of the costs incurred for
service companies (ESCOs) to achieve the
the development, establishment and
purposes of this Circular.
operations of the Program.
(v)
Implement the Program, in SECTION 6. Regulatory Support. The DOE
accordance with the approved rules, and the Energy Regulatory Commission (ERC)
procedures and guidelines; and shall closely coordinate in order that the
applications filed with the ERC to specifically
(vi) Submit monthly reports to the DOE address the Visayas grid supply issues be
as well as other related reports as duly resolved and acted upon expeditiously
may be required from time to time. through the use of modes such as, but
not limited to, Section 4(e), Rule 3 of the
(c ) All electric industry participants are Implementing Rules and Regulations of EPIRA
directed to participate in the Program, as amended in June 2007.
in accordance with this Circular, and the
rules, guidelines and procedures as may SECTION 7. Nothing in this Circular shall be
be issued and promulgated by the NGCP- construed as to amend, supplant, or repeal
SO, PEMC and the DOE from time to time. any of the mechanisms or institutions already
existing or responsibilities already allocated
SECTION 4. Renewal Energy Development. and provided for under any existing law, rule
The Renewal Energy Management Bureau, or contract.
as created by Republic Act No. 9513 (the
“Renewable Energy Act of 2008”), or the SECTION 8. Effectivity and Publication. This
responsible DOE Bureau/s or entities Circular shall be effective immediately upon
involved in the renewable energy resource its publication in two (2) newspapers of
development shall: general circulation.
(a) Assess the maximum contribution of This Circular shall remain in effect until
renewable energy resources for power otherwise revoked.
generation to the Visayas Grid.
Taguig, Metro Manila, 16 January 2009.
(b) Require the renewable energy service
contractors to prepare plans and ANGELO T. REYES
ensure readiness to maximize the use Secretary
DIRECTING ALL POWER GENERATION COMPANIES, THE TRANSMISSION SERVICE PROVIDER, AND
ALL DISTRIBUTION UTILITIES TO ENSURE ADEQUATE AND RELIABLE ELECTRIC POWER SUPPLY IN
THE COUNTRY
WHEREAS, Section 5 of Republic Act No. business affected with public interest and
7638, as amended by Section 37 of Republic shall be competitive and open;
Act No. 9136, or the Electric Power Industry
Reform Act of 2001 (EPIRA), mandates the WHEREAS, as a result of the privatization
Department of Energy (DOE) to, among of Government’s power generation assets,
others, 1) ensure the reliability, quality and the generation of electricity in Luzon is
supply of electric power, and 2) establish now dominated by the private sector and
and administer programs for the exploration, eventually, the same situation will occur in
transportation, marketing, distribution, Visayas;
utilization, conservation, stockpiling and
storage of energy resources of all forms, WHEREAS, a Generation Company has an
whether conventional or non-conventional; obligation to meet the technical and financial
operating criteria ensuring compliance
WHEREAS, the DOE is mandated to develop with standards for among others, security,
policies and procedures and, as appropriate, reliability, unplanned outages and provision
promote a system of energy development of ancillary services and shall operate in
incentives to enable and encourage electric accordance with such operational criteria;
power industry participants to provide
adequate capacity to meet demand including, WHEREAS, under the EPIRA, the distribution
among others, reserve requirements; of electricity, a business affected with public
interest, is a regulated common carrier
WHEREAS, the DOE is also mandated to business requiring a national franchise, which
monitor private sector activities relative franchise may be revoked by Congress upon
to energy projects in order to attain the recommendation of the DOE and/or the
goals of the restructuring, privatization, and Energy Regulatory Commission (ERC);
modernization of the electric power sector as
provided for under existing laws: Provided, WHEREAS, Section 9 of the EPIRA mandated
That the Department shall endeavor to the National Transmission Company and/
provide for an environment conducive to free or its Concessionaire, presently the National
and active private sector participation and Grid Corporation of the Philippines (NGCP)
investment in all energy activities; among others, to provide open and non-
discriminatory access to its transmission
WHEREAS, the DOE is further enjoined system to all electricity users, ensure and
to formulate and implement programs, maintain the reliability, adequacy, security,
including a system of providing incentives and stability and integrity of the nationwide
penalties, for the judicious and efficient use electrical grid in accordance with the
of energy in all energy-consuming sectors of performance standards for the operations
the economy; and maintenance of the grid as set forth in
a Philippine Grid Code (PGC), and improve
WHEREAS, Section 6 of the EPIRA provides and expand its transmission facilities,
that the generation of electric power is a consistent with the PGC and the Transmission

Development Plan (TDP) to adequately and temperature variation, well blockage
serve generation companies, distribution and limitation on steam and brine
utilities and suppliers requiring transmission collection and disposal system.
service and/or ancillary services through
the transmission system: Provided, That All Generation Companies shall submit
TRANSCO shall submit any plan for expansion its Maximum Available Capacity and
or improvement of its facilities for approval operational status on a monthly basis
by the ERC; to the DOE-Electric Power Industry
Management Bureau (EPIMB), with
NOW, THEREFORE, from the foregoing a copy furnished to the SO and the
premises and pursuant to the mandate of the Philippine Electricity Market Corporation
DOE under the EPIRA, this Circular is hereby (PEMC);
promulgated:
2.2 Oil-based generation companies shall
SECTION 1. Scope. – This Circular shall apply maintain an adequate in-country stocks of
to all Generation Companies and Distribution fuel equivalent to at least 15-days running
Utilities in the country as defined in the inventory which includes shipments in
EPIRA as well as the National Transmission transit. For this purpose, all oil-based
Corporation (TRANSCO) or its concessionaire, generation companies shall submit to
presently the NGCP which is also referred to DOE-EPIMB, on a monthly basis, a report
as the System Operator (SO); on fuel inventory based on typical load
dispatch and fuel consumption;
SECTION 2. Responsibilities of Generation
Companies. – Pursuant to the EPIRA, all 2.3 Coal power plants shall ensure the
Generation Companies shall ensure the required 30-day coal running inventory
availability of its generation facilities at all which includes shipments in transit. An
times subject only to technical constraints inventory report shall be submitted to
duly communicated to the SO in accordance the DOE-EPIMB, on a monthly basis,
with existing rules and procedures. For this based on typical load dispatch and fuel
purpose, Generation Companies shall have consumption schedule;
the following responsibilities:
2.4 During the scheduled maintenance of
2.1 All Generation Companies shall operate Malampaya natural gas facilities, all
in accordance with their Maximum affected generation companies shall
Available Capacity. For this purpose, maintain at least 15-days running
the Maximum Available Capacity shall inventory of the alternative fuel and shall
be equal to the registered maximum operate at full capacity;
capacity of the (aggregate) unit less
(1) forced unit outages, (2) scheduled 2.5 All generation companies with natural
unit outages, (3) de-rated capacity due gas fired, geothermal and hydroelectric
to technical constraints which include generating plants shall submit to the DOE
(a) plant equipment-related failure a monthly report on the current status
and ambient temperature, (b) hydro and a forecast of the energy sources of
constraints which pertains to limitation its generating plants;
on the water elevation/turbine discharge
and megawatt output of the plant and (c) 2.6 All Generation Companies must notify
geothermal constraints which pertain to and coordinate with the System Operator
capacity limitation due to steam quality of any planned activity such as shutdown
(chemical composition, condensable and of its equipment in accordance with the
non-condensable gases), steam pressure PGC;
2.7 Immediately inform the DOE of any such threats. The report shall include a
unexpected shutdown or derating of the description of the, magnitude, duration,
generating facility or unit thereof. The causes and the areas affected, as well as
report shall include a description of the the contingency or mitigating measures
causes of the unexpected shutdown and that were undertaken; and
estimated resumption;
3.5 Ensure the institutionalization of the
2.8 Generating Companies shall seek prior necessary connection agreements
clearance from the DOE regarding any with all the Grid Users (i.e., Generation
plans for deactivation or mothballing Companies, DUs and Direct Customers)
of existing generating units or facilities and impose all the pertinent requirements
critical to the reliable operation of the in the PGC.
Grid; and
SECTION 4. Responsibilities of
2.9 Strictly abide by the provisions of the Distribution Utilities. – Distribution utilities
PGC. shall:

SECTION 3. Responsibilities of TRANSCO 4.1 Regularly submit to the DOE the prescribed
and/or its concessionaire. – Pursuant to its Distribution Utility Development Plan
mandate under the EPIRA, TRANSCO and/or (DDP) to monitor the existing, available,
its concessionaire, presently NGCP, shall: and future supply requirements and the
PDUs Monthly Operations Report (MOR)
3.1 Ensure that transmission facilities and Monthly Financial and Statistical
pursuant to the TDP approved by the Report (MFSR) for ECs;
DOE are adequately provided and
available for access by all electricity users 4.2 Comply with all the requirements of the
in all areas of the grid. The NGCP, in PGC and Philippine Distribution Code
the preparation of the TDP shall include (PDC) at all times and report significant
all the transmission requirements of load interruptions in its franchise area or
the generation companies, distribution any threats that may lead such events;
utilities and suppliers. Any necessary
modifications/adjustments duly 4.3 Ensure that the power requirements
endorsed and approved by the DOE shall within their franchise areas are
be incorporated in the TDP by the NGCP adequately covered by supply contracts
prior to its finalization; or spot purchases from the WESM at all
times; and
3.2 Undertake rigid evaluation of
circumstances attendant prior to approval 4.4 In cases of Red Alert status as declared by
of deactivated shutdown in accordance the System Operator, immediately submit
with the criteria laid down in the System to the DOE its manual load dropping
Operator Procedure Manual; schedule.

3.3 Submit to the DOE for consideration SECTION 5. Lead Agency. – The DOE,
the Grid Operating and Maintenance being the agency tasked to supervise and
Program (GOMP) including any updates oversee the electric power industry, shall be
and monitor the compliance of the the lead agency in ensuring that all plans and
generation companies thereof; programs to achieve the objectives of this
Circular are properly carried out.
3.4 Immediately inform the DOE of any
power interruptions or existence of
SECTION 6. Monitoring, Enforcement SECTION 7. Regulatory Support. –
and Compliance. – The DOE, through EPIMB, The ERC shall ensure the timely recovery
shall monitor the compliance of all Generation of generation cost of the power plants in
Companies, all Distribution Utilities and the accordance with existing laws and procedures.
NGCP. The DOE, in consultation with the ERC,
shall formulate and implement enforcement SECTION 8. Linkage with Other
and penalty mechanism in cases of non- Government Entities. – The DOE may seek
compliance to this Circular by the Generation assistance from other government agencies
Companies, Distribution Utilities and the such as Bureau of Customs and National
NGCP. Water Resources Board in the monitoring
of the fuel inventory and supply of water
For the purpose of monitoring and assessing resources for power use.
the overall reliability performance of the Grid
and the Grid User facilities, a Grid Reliability SECTION 9. Effectivity. – This Circular
Task Force to undertake the necessary studies shall take effect immediately fifteen (15) days
and policy recommendations to the DOE and from its publication in a newspaper of general
ERC shall be created which members and circulation.
specific task shall be defined in a separate
Circular. Signed this 26th day February of 2010 at
the DOE, Energy Center, Merritt Road, Fort
Bonifacio, Taguig City, Metro Manila.

STREAMLINING AND RATIONALIZING THE GRANT OF SUBSIDIES IN THE ELECTRIFICATION OF
MISSIONARY AREAS USING SOLAR PHOTOVOLTAIC SYSTEMS
WHEREAS, Section 2 of Republic Act No. Missionary Electrification Development

9136, otherwise known as the “Electric Power Plan (MEDP) which shall include a program
Industry Reform Act of 2001” or “EPIRA,” for the provision of capital investment and
declares that it is the policy of the State to operations regarding capacity additions in
ensure and accelerate the total electrification existing missionary areas and the facilities to
of the country as well as to ensure the quality, be provided in other areas not connected to
reliability, security and affordability of the the transmission system;
supply of electric power;
WHEREAS, the same rule directs the DOE to
WHEREAS, the Department of Energy issue specific guidelines on how to encourage
(“DOE”), in pursuance of the above policies the inflow of private capital and the manner
of the State has targeted the attainment of whereby other parties including distribution
100 percent barangay electrification level by utilities and qualified third parties (“QTPs”) can
2006 and energization of 90 percent of total participate in the missionary electrification
potential households by 2017; projects set forth in the MEDP;

WHEREAS, Rule 13 of the Implementing WHEREAS, to achieve the formidable task of
Rules and Regulations of EPIRA or “EPIRA- providing electricity to unenergized areas, the
IRR” mandates the DOE to formulate a DOE in partnership with other government

agencies and industry stakeholders, has SECTION 2. Definition of Terms. –
committed to implement the MEDP in a
holistic and sustainable manner, which For the purposes of this Circular, the term:
includes among others, rationalization of
tariff and subsidy policy, opening up areas that (a) ”Consumers” refers to any of the
cannot be served by the distribution utilities following types of consumers:
to alternative electric service providers such
as QTPs; (1) Single household or establishment
availing of a solar home system;
WHEREAS, the Government, despite
its limited public resources, is currently (2) Community groups and public
providing various forms of subsidies to rural institutions availing of Solar PV
electrification projects and other energy systems such as solar battery
intensive activities; charging station and PV street-lights
for community lighting, health
WHEREAS, the DOE considers Solar clinics, schools, water supply and
Photovoltaic (“PV”) to be cost-effective and other community services;
environment-friendly technology in providing
electricity service and other community (b) ”Donor Entities” refers to any of the
services to sparsely populated, remote, following:
unserved and dispersed areas;
(1) Multilateral and bilateral agencies
WHEREAS, there are various projects that are such as World Bank, USAID, UNDP,
currently implementing solar Photovoltaic ADB, JICA, foreign governments and
(PV) systems to provide electricity services other similar agencies providing
to sparsely populated, remote, unserved, assistance to the government or
and dispersed markets that do not give directly to the consumers;
due consideration to economic efficiency,
financial prudence, and institutional capacity; (2) Private and civic groups engaged in
rural and community development;
WHEREAS, to ensure the effective
implementation of the solar PV projects in (c) “Missionary Electrification” refers to the
an integrated and sustainable manner, there provision of basic electricity service in
is an imperative need to rationalize the grant unviable areas with the ultimate aim of
of subsidies to missionary electrification bringing the operations in these areas to
projects using PV systems; viable levels;

NOW, THEREFORE, the DOE hereby adopts (d) “Missionary Electrification Development
and promulgates the following policies on the Program (MEDP)” refers to the five (5)-
grant of subsidies to missionary electrification year plan of the DOE, updated annually,
projects using PV systems. to implement missionary electrification
projects funded through the share of
SECTION 1. Scope of Coverage. – Missionary Electrification in the Universal
Charge (ME-UC). The MEDP serves as the
This Circular shall apply to DOE, NEA, SPUG, country’s blueprint for electrification and
and other government agencies as well as one of the basis for the determination by
donor entities providing solar PV subsidies in the ERC of the ME-UC;
unenergized, remote, dispersed and unviable
areas suitable for solar PV systems. (e) “Qualified Third Party” or “QTP” refers to
the alternative electric service provider
authorized to serve remote and unviable (a) Missionary Electrification Component of
areas pursuant to Section 59 of the EPIRA the Universal Charge (ME-UC);
and Rule 14 of the EPIRA-IRR;
(b) Budgetary allocations of DOE, NEA, SPUG
(f) “Solar Battery Charging Station” refers to and other energy related government
a solar PV system consisting of several PV agencies appropriated for rural
modules that provides battery charging electrification such as but not limited
services to a group of consumers or to grants and aids received from other
community for generation of electricity; agencies of the government, private
sector or international institutions and
(g) “Solar Home System” refers to a scheme internally-generated funds;
of solar PV system consisting of one
or more PV modules that provides (c) DOE administered funds appropriated for
electricity services to a single household rural electrification; and
or establishment;
(d) Funds from donor entities.
(h) “Solar Photovoltaic System” or “Solar
PV System” refers to a system that SECTION 4. Beneficiaries of the Solar PV
uses a semi-conductor device called Subsidy. –
photovoltaic modules to convert solar
energy directly into electrical energy, Consumers within an unenergized, remote,
which include among others solar battery dispersed and unviable area, suitable for
charging station, solar home system and solar PV systems shall be eligible beneficiaries
other similar solar PV applications; of the solar PV subsidy; provided that priority
shall be given to consumers in areas identified
(i) “Solar PV Dealer” refers to a Person in the MEDP, and/or unenergized areas that
engaged in direct dealership business have potential market for solar PV systems.
which sells PV equipment to households
in unenergized and remote rural areas; SECTION 5. Guiding Policies and Strategies
on Solar PV Subsidy. –
(j) “Solar PV Service Provider” refers to a
variant of Qualified Third Party engaged (a) The utilization of solar PV systems shall
in fee-for-service business that installs be on a least-cost approach and shall be
solar PV systems and, in turn, collects fees consistent with the overall government
for services to consumers in unenergized program for missionary electrification as
or remote rural areas; formulated and defined in the MEDP.

(k) “Solar PV Subsidy” refers to the direct (b) The solar PV subsidy shall be made
or indirect assistance provided by the available in a rational, transparent,
government and/or donor entities for predictable and technology-neutral
reducing the cost of providing electricity manner in order to make solar PV systems
services and other community services more affordable to the poor consumers.
using solar PV systems in unenergized
remote, dispersed and unviable areas (c) The amount of solar PV subsidy sourced
suitable for solar PV systems. from government shall be determined
by the DOE in consultation with other
SECTION 3. Sources of Solar PV Subsidy. – energy related government agencies,
donor entities as well as solar PV dealers
The solar PV subsidy shall be funded from, and service providers. The determination
but not limited to, the following: of solar PV subsidy shall take into account
the following: with the DOE from its inception. To this
end, the DOE shall coordinate with NEDA
(1) Electricity consumption of and concerned government agencies
consumers; the implementation of all new projects
related to the use of solar PV systems.
(2) Size/capacity and number of
installations of solar PV systems; (g) The entry of solar PV dealers and
service providers shall be encouraged
(3) Cost of solar PV systems; to develop and market solar PV systems
in unenergized, remote, dispersed and
(4) Consumer’s willingness to pay; unviable area. The DOE shall issue
accreditation guidelines for solar PV
(5) Potential contribution of the dealers and service providers.
household electrification to the
community development; (h) The DOE shall establish and issue
business/operating guidelines for all
(6) Innovative delivery mechanisms of accredited solar PV dealers/service
solar PV systems such as but not providers in a manner that shall foster
limited to direct dealership and fee- market competition for solar PV systems,
for-service schemes; and promote commercially available products
and services using solar PV systems in
(7) Cost of developing and marketing unenergized and remote rural areas and
solar PV systems. ensure that solar PV subsidy is passed
on to consumers in the form of a lower
(d) The scheme of delivering the solar PV price.
subsidy sourced from the government
shall likewise be designed by the DOE. SECTION 6. Administration of Solar PV
The DOE shall endeavor to implement Subsidy. –
an output-based approach (i.e., the
provision of subsidy based on specific (a) The DOE shall have the overall
accomplishments/performance for a responsibility in the implementation of
specific period of time) in the use of all the solar PV subsidy program, which shall
available government funds allocated for include, among others, the following:
solar PV subsidy.
(1) Formulation of the overall
(e) The DOE shall optimize the use of the solar framework and clearinghouse for all
PV subsidy sourced from the government initiatives related to solar PV system
through appropriate schemes such as electrification;
joint undertakings with donor entities
and/or with private capital from solar PV (2) Setting of technical and performance
dealers and service providers. standards for all solar PV Systems;

(f) To ensure consistency with the MEDP (3) Accreditation of solar PV systems
and optimized use of solar PV subsidies, dealers/service providers;
all donor entities that shall provide direct
or indirect assistance in the provision of (4) Establishment and oversight of
electricity and other community services solar PV dealers/service providers
using solar PV systems shall be enjoined network;
to coordinate all plans and programs

(5) Identification and specifying the to prospective solar PV systems dealers/
source of solar PV subsidy which providers and targeted consumers.
shall be based on the amount of
subsidy required to implement (d) A Unified Electrification Subsidy
solar PV systems projects, extent Committee is hereby established to
of installation of solar PV systems, operate under the Expanded Rural
specific programs of donor entities, Electrification (ER) Program Team,
etc.; created pursuant to Department Circular
No. 2003-04-004 issued on April 01, 2003.
(6) Establishment of a computerized The DOE shall chair the said Committee
database/information system to which shall have the following functions
track and monitor the recipients of and responsibilities:
subsidies for use of solar PV systems;
(1) Identify all rural electrification
(7) Coordination with various projects including solar PV systems
government agencies implementing installations for inclusion in the
solar PV systems projects; and, MEDP; and,

(8) Project monitoring, evaluation and (2) Formulate, recommend and regularly
impact analysis of solar PV subsidy. update appropriate guidelines for
the provision of subsidy to rural
(b) The DOE, in consultation with other electrification projects including
concerned government agencies, donor those using solar PV systems.
entities and the solar PV industry, shall
formulate implementing guidelines for SECTION 7. Separability. –
the administration of solar PV subsidies
within one (1) month from the effectivity If for any reason, any section of this Circular
of the Circular. is declared unconstitutional or invalid, the
other parts or sections hereof which are not
The implementing guidelines shall affected thereby shall continue to be in full
contain the following, among others: force and effect.

(1) Methodology for the determination SECTION 8. Repealing Clause. –
of solar PV subsidy for various types
of consumers, applications and All rules, guidelines and issuances or parts
sources of subsidy; thereof which are inconsistent with this
Circular are hereby repealed or modified
(2) Procedure of availing solar PV accordingly.
subsidies; and
SECTION 9. Effectivity. –
(3) Accreditation procedures for solar
PV dealers and service providers. This Circular shall take effect one (1) week
following its publication in a newspaper of
(c) The DOE, in partnership with the solar PV general circulation.
industry and donor entities shall embark
an information campaign to hasten VINCENT S. PÉREZ, JR.
the market acceptability of the solar Secretary
PV systems within two (2) years upon
the effectivity of this Circular. The said Fort Bonifacio, Taguig, Metro Manila,
information campaign shall be directed 28 May 2004.
Chapter 4
National Power Corporation
COMMONWEALTH ACT NO. 120

AN ACT CREATING THE “NATIONAL POWER CORPORATION,”PRESCRIBING ITS POWERS
AND ACTIVITIES, APPROPRIATING THE NECESSARY FUNDS THEREFOR, AND RESERVING THE
UNAPPROPRIATED PUBLIC WATERS FOR ITS USE
SECTION 1. For the purpose of undertaking this Act; to intercept and divert the flow
the development of hydraulic power and of waters from lands of riparian owners
the production of power from other sources and from persons owning or interested
and for other purposes specified in this Act, in waters which are or may be necessary
there is hereby created a public corporation for said purposes, upon payment of
which shall be known as the “National Power due compensation therefore; to alter,
Corporation.” The words “Corporation” straighten, obstruct or increase the flow
and “Board” appearing in this Act shall of water in streams or water channels
respectively refer to the National Power intersecting or connecting therewith
Corporation and the National Power Board, or contiguous to its works or any part
hereinafter provided. thereof;

SECTION 2. The powers, functions, rights and (g) To construct, operate and maintain power
activities of the said corporation shall be the plants, auxiliary plants, dams, reservoirs,
following: pipes, mains, transmission lines, power
stations and substations, and other works
(a) To have continuous succession under its for the purpose of developing hydraulic
corporate name until otherwise provided power from any river, creek, lake, spring
by law; and waterfall in the Philippines and
supplying such power to the inhabitants
(b) To prescribe its by-laws;
thereof; to acquire, construct, install,
(c) To adopt and use a seal and alter it at its maintain, operate and improve gas, oil,
pleasure; or steam engines, and/or other prime
movers, generators and other machinery
(d) To sue and be sued in any court; in plants and/or auxiliary plants for
the production of electric power; to
(e) To conduct investigations and surveys for
establish, develop, operate, maintain and
the development of water power in any
administer power and lighting system
part of the Philippines;
for the use of the Government and the
(f) To take water from any public stream, general public; to sell electric power
river, creek, lake spring or waterfall in the and to fix the rates and provide for the
Philippines, for the purposes specified in collection of the charges for any service

rendered: Provided, That the rates of (k) When essential to the roper administration
charges shall not be subject to revision of its corporate affairs or necessary for
by the Public Service Commission; the proper transaction of its business
or to carry out the purposes for which it
(h) To acquire, promote, hold, transfer, sell, was organized, to contract indebtedness
lease, rent, mortgage, encumber and and issue bonds subject to the approval
otherwise dispose of anything incident of the President of the Philippines upon
to, or necessary, convenient or proper the recommendation of the Secretary of
to carry out the purposes for which the Finance. The bonded indebtedness of
corporation was created; the Corporation, of all classes, shall not
at any time exceed twenty million pesos
(i) To construct works across, or otherwise, and the issue thereof shall be subject to
any stream, watercourse, canal, ditch, the conditions set forth in section four of
flume, street, avenue, highway or railway this Act; and
of private and public ownership, as the
location of said works may require: (l) To exercise such powers and do such
Provided, That said works be constructed things as may be reasonably necessary to
in such a manner as not to endanger life carry out the business and purposes for
or property: And provided, further, That which it was organized, or which, from
the stream, watercourse, canal, ditch, time to time, may be declared by the
flume, street, avenue, highway or railway Board to be necessary, useful, incidental
so crossed or intersected be restored as or auxiliary to accomplish the said
near as may be to their former state, or in a purposes.
manner not to impair unnecessarily their
usefulness. Every person or entity whose SECTION 3. All corporate powers of the
right-of-way is crossed or intersected National Power Corporation shall be vested
by said works shall not obstruct any in a board to be known as the National
such crossings or intersections and shall Power Board, composed of five members
grant the Board or its representative, who shall all be appointed by the President
the proper authority for the execution of the Philippines with the consent of the
of such work. The Corporation is Commission of Appointments of the National
hereby given the right-of-way to locate, Assembly. The members of the Board shall
construct and maintain such works over hold office for a term of three years.
and throughout the lands owned by the
Commonwealth of the Philippines or any The Board shall immediately organized by
of its branches and political subdivisions. electing a chairman from among its members
The Corporation or its representative and by adopting its rules of procedure and
may also enter upon private property in fixing the time and place for holding regular
the lawful performance or prosecution of meetings.
its business and purposes: Provided, That
the owner of such private property shall The members of said Board who are not
be indemnified for any actual damage in the employ of the Government of the
caused thereby; Commonwealth of the Philippines shall
receive a per diem of not to exceed twenty-
(j) To exercise the right of eminent domain five pesos for each day of meeting of the
for the purposes of this Act in the Board actually attended by them.
manner provided by law for instituting
condemnation proceedings by the It shall appoint its secretary and fix his salary
national, provincial, and municipal which shall not exceed four thousand pesos
governments; per annum.
The Board shall render reports to the subject to the provisions of the Act of Congress,
President of the Philippines and the National approved March 24, 1934, otherwise known
Assembly as provided in section five hundred as the Tydings-McDuffie Law, which facts
and seventy-four to five hundred and seventy- shall be stated upon the face of said bonds.
seven, inclusive, of act Numbered Twenty- Said bonds shall be receivable as security
seven hundred and eleven. in any transaction with the Government in
which such security is required.
SECTION 4. Whenever the Board may deem
it necessary for the Corporation to incur an A sinking funds shall be created, the total
indebtedness or to issue bonds to carry out whereof at each annual due date of the
the purposes for which the Corporation bonds shall be equal to the total of an annuity
has been organized, it shall, by resolution, of nineteen thousand three hundred seventy-
so declare and state the purpose for which one pesos and thirty-three centavos for each
the proposed debt is to be incurred and the one million pesos of bonds outstanding, with
conditions of the bonds. In order that such interest at the rate of three and one-half
resolution be valid, it shall be passed by the per centum per annum. The sinking funds
affirmative vote of at least three members of shall be under the custody of the Treasurer
the Board and approved by the President of of the Philippines, who shall invest the same
the Philippines upon the recommendation of subject to the approval of the Board and the
the Secretary of Finance. Secretary of Finance.

The bonds shall be issued under the following The Commonwealth of the Philippines hereby
conditions: (a) they shall be in registered guarantees the payment of the National
form and transferable at the Office of the Power Corporation of both the principal
Treasurer of the Philippines in Manila or at and the interest of the bonds issued by said
the Registry Office of the Department of the Corporation by virtue of this Act, and shall
Treasury of the United States at Washington, pay such principal and interest in case the
District of Columbia; (b) they shall not be National Power Corporation fails to do so,
sold at less than par; (c) they shall be payable and there are hereby appropriated, out of the
thirty years after the date of issue but may general funds in the Philippine Treasury not
be redeemable at the pleasure of the Board, otherwise appropriated, the sums necessary
after ten years from the date of issue; (d) to make the payments guaranteed by this
they shall bear interest at an annual rate to Act: Provided, That the sums so paid by the
be determined before their issuance by the Commonwealth of the Philippines shall be
Secretary of Finance; (e) the interest may refunded by the National Power Corporation.
be determined by the Secretary of Finance
before the issuance of the bonds; and (f) both SECTION 5. The affairs and current business
principal and interest shall be payable in gold of the Corporation shall be conducted, and
coin or its equivalent, in the discretion of the its rights and property shall be kept and
Secretary of Finance, in Manila, if the bonds preserved, under the direction of the National
are sold in the Philippines or in the United Power Board, by the Manager, Assistant
States Treasury if they are sold in the United Manager, Treasurer and such additional
States. officers and employees as the said Board may
provide. The Auditor General shall be ex-
The bonds issued under the authority of officio Auditor of the Corporation.
this Act shall be exempt from the payment
of all taxes by the Commonwealth of the The duties and powers as well as the
Philippines, or by any authority, branch, compensation of the said officers and
division or political subdivision thereof and employees shall be such as may be defined

and prescribed or fixed by the National require the contractor to give an adequate
Power Board: Provided, That no additional bond to secure the proper accomplishment
compensation shall be given to any officer or of the work under contract and to satisfy
employee of the Commonwealth or any of its all obligations for materials used and labor
political subdivisions or of any public or semi- employed upon the same: Provided, That
public corporation, who may be designated to any repair, reconstruction or other work of an
perform additional duties in the Corporation. emergency nature may be authorized by the
Board to be undertaken by administration or
The Manager, Assistant Manager and by contract.
Treasurer shall be appointed by the President
of the Philippines, with the consent of the SECTION 8. Any person or persons who
Commission on Appointments of the National shall willfully or maliciously destroy, injure
Assembly. or interfere with any canal, raceway, ditch,
lock, pier, inlet, crib, bulkhead, dam, gate,
SECTION 6. Upon determination by the sluice, reservoir, aqueduct, conduit, pipe,
Manager that the construction of any culvert, post, abutment, conductor, cable-
waterpower project by the Corporation is wire, insulator, weir, benchmark, monument,
advisable, he shall submit a report on the or other work, appliance, machinery, building
engineering and economic feasibility of the or property of the Corporation, or who shall
project together with preliminary plans willfully or maliciously do any act which shall
and estimates of the cost of the proposed injuriously affect the quantity of the water
development and the estimated income to or electrical energy of the Corporation or
be derived there from. the supply, transmission, measurement or
regulation thereof, or who shall maliciously
The National Power Board may thereupon at interfere with any person engaged in the
its discretion, designate a consulting board discharge of duties connected therewith,
composed of two competent and impartial shall be guilty of a felony and punished
engineers and one competent economist to with a fine not to exceed five thousand
pass upon the different aspects, of the project pesos or with imprisonment for a term not
and comment on the report of the Manager. to exceed two years, or both such fine and
The Board shall, with the said report and imprisonment, at the discretion of the court,
comment in view, decide whether or not and any injured party shall have the right
the project shall be constructed, and what to recover all damages suffered and cost of
changes if any shall be made in the scheme suit in a separate civil action in any court of
proposed by the Manager. The decision of competent jurisdiction.
the Board shall be final.
SECTION 9. Subject to all existing rights, all
SECTION 7. All work of construction or repair unappropriated public waters which may
of the Corporation involving an estimated be used and developed for waterpower
cost of three thousand pesos or more shall purposes shall be, and hereby are, reserved
be let by the Manager, with the approval of from appropriation by any person, firm or
the National Power Board, to the responsible corporation under any general or special
bidder who made the lowest and most law relating to the appropriation of public
advantageous bid. Notice to bidders shall be waters, for the use of the National Power
published in the Official Gazette as provided Corporation created by this Act: Provided,
by law. In case no satisfactory bid is received, however, That the President, upon the
the Manager may proceed to advertise anew, recommendation of the Secretary of Public
or with the approval of the Board, proceed Works and Communications, concurred in by
to do the work by administration. Before the National Power Board, may, from time
award of contract is made, the Manager shall to time, release from this reservation any
unappropriated public waters which may SECTION 11. There is hereby appropriated,
not be necessary for the use of the National out of any funds in the Philippine Treasury
Power Corporation. not otherwise appropriated, the sum of two
hundred and fifty thousand pesos, for the
SECTION 10. At any time that the Board purpose of organizing the Corporation and
certifies that the Corporation is able to conducting the preliminary work: Provided,
furnish electric power for lighting and other That the said amount shall be reimbursed to
purposes to any office, shop, or establishment the Philippine Treasury upon the certification
operated and/or owned or controlled by the of the Auditor General that the Corporation is
National Government or by any city, province, in a financial condition to do so, and by virtue
municipality or other political subdivision of of such certification, the National Power
the Commonwealth of the Philippines, the Board shall approve a resolution authorizing
National Government and the government the Treasury of the Corporation to make the
of said city, province, municipality or other necessary payment.
political subdivision shall be compelled to
secure from the Corporation as soon as As soon as the construction of any project
practicable such electric power as it may is decided upon, the Corporation may issue
need for lighting and the operation of its bonds for financing the project in accordance
offices, shops or establishments or for any with the provisions of section four of this Act.
work undertaken by it.
SECTION 12. This Act shall take effect upon its
The provisions of this section shall also apply approval.
to firms or business owned or controlled by the
National Government or by the government Approved, November 3, 1936
of any city, province, municipality or other
political subdivision.

AN ACT REVISING THE CHARTER OF THE NATIONAL POWER CORPORATION
SECTION 1. The Charter of the National nation which shall be pursued coordinately
Power Corporation is hereby revised, and and supported by all instrumentalities and
shall henceforth read as follows: agencies of the government, including its
financial institutions.
“SECTION 1. Declaration of Policy. – Congress
hereby declares that (1) the comprehensive “SEC. 2. The National Power Corporation;
development, utilization and conservation of Its Corporate Life; ‘Corporation’ and
Philippine water resources for all beneficial ‘Board’ Defined. – To carry out the above-
uses, including power generation, and (2) the stated policy, specifically to undertake the
total electrification of the Philippines through development of hydroelectric generation of
the development of power from all sources power and the production of electricity from
to meet the needs of industrial development nuclear, geothermal and other sources, as
and dispersal and the needs of rural well as the transmission of electric power on
electrification are primary objectives of the a nationwide basis, the public corporation

created under Commonwealth Act Numbered upon payment of just compensation
One hundred twenty and know as the therefor; to alter, straighten,
‘National Power Corporation’ shall continue obstruct or increase the flow of
to exist for fifty years from and after the water in streams or water channels
expiration of its present corporate existence. intersecting or connecting therewith
or contiguous to its works or any
“In the pursuit of its objectives, the part thereof: Provided, That just
Corporation shall, s far as feasible, spread compensation shall be paid to any
the benefits of its projects and operations person or persons whose property
to the greatest number of the population is, directly or indirectly, adversely
possible, and the Corporation shall prosecute affected or damaged thereby;
faithfully such projects as will promote the
total electrification of Luzon Islands, Visayan “(g) To construct, operate and
Islands and the Mindanao Islands. maintain power plants, auxiliary
plants, dams, reservoirs, pipes,
“The words ‘Corporation’ and ‘Board’ mains, transmission lines, power
appearing in this Act shall respectively refer stations and substations, and other
to the National Power Corporation and the works for the purpose of developing
National Power Board. hydraulic power from an| river,
creek, lake, spring and waterfall in
“SEC. 3. Powers and General Functions of the the Philippines and supplying such
Corporation. – The powers, functions, rights power to the inhabitants thereof; to
and activities of the Corporation shall be the acquire, construct, install, maintain,
following: operate, and improve gas, oil, or
steam engines, and/or other prime
“(a) To have continuous succession movers, generators and machinery
under its corporate name until in plants and/or auxiliary plants for
otherwise provided by law; the production of electric power; to
establish, develop, operate, maintain
“(b) To prescribe its by-laws not and administer power and lighting
inconsistent with this Act; systems for the transmission and
utilization of its power generation;
“(c) To adopt and use a seal and alter to sell electric power in bulk to
it at its pleasure; (1) industrial enterprises, (2) city,
municipal or provincial systems
“(d) To sue and be sued in any court; and other government institutions,
(3) electric cooperatives, (4)
“(e) To conduct investigations and franchise holders, and (5) real
surveys for the development of water estate subdivisions: Provided,
power in any part of the Philippines; That the sale of power in bulk to
industrial enterprises and real estate
“(f) To take water from any public subdivisions may be undertaken by
stream, river, creek, lake, spring the Corporation when the power
or waterfall in the Philippines, for requirement of such enterprises or
the purposes specified in this Act; real estate subdivisions is not less than
to intercept and divert the flow 100 kilowatts, when in the judgment
of waters from lands of riparian of the Public Service Commission the
owners and from persons owning franchise holder is not in a position
or interested in waters which are or or fails or refuses to adequately
may be necessary for said purposes, supply such power requirement,
unless the franchise holder consents throughout the lands owned by
thereto: Provided, further, That the the Republic of the Philippines or
Corporation shall continue to sell any of its branches and political
electricity to industrial enterprises subdivisions. The Corporation or
under existing contracts; and provide its representative may also enter
for the collection of the charges for upon private property in the lawful
any service rendered; performance or prosecution of its
business and purposes, including the
“(h) To acquire, promote, hold, construction of the transmission lines
transfer, sell, lease, rent, mortgage, thereon: Provided, That the owner
encumber and otherwise dispose of of such private property shall be
property incident to, or necessary, indemnified for any actual damage
convenient or proper to carry out the caused thereby: Provided, further,
purposes for which the Corporation That said action for damages is filed
was created: Provided, That in within five years after the rights of
case a right of way is necessary for way, transmission lines, substations,
its transmission lines, easement of plants or other facilities shall have
right of way shall only be sought: been established: Provided, finally,
Provided, however, That in case the That after the said period, no suit
property itself shall be acquired by shall be brought to question the said
purchase, the cost thereof shall be rights of way, transmission lines,
the fair market value at the time of substations, plants or other facilities;
the taking of such property;
“(j) To exercise the right of eminent
“(i) To construct works across, or domain for the purpose of this
otherwise, any stream, watercourse, Act in the manner provided by
canal, ditch, flume, street, avenue, law for instituting condemnation
highway or railway of private and proceedings by the national,
public ownership, as the location of provincial and municipal
said works may require: Provided, governments;
That said works be constructed in
such a manner as not to endanger life “(k) When essential to the proper
or property: And provided, further, administration of its corporate
That the stream, watercourse, canal affairs or necessary for the proper
ditch, flume, street, avenue, highway transaction of its business or to carry
or railway so crossed or intersected out the purposes for which it was
be restored as near as possible to organized, to contract indebtedness
their former state, or in a manner and issue bonds subject to approval of
not to impair unnecessarily their the President upon recommendation
usefulness. Every person or entity of the Secretary of Finance;
whose right of way or property
is lawfully crossed or intersected “(l) To exercise such powers
by said works shall not obstruct and do such things as may be
any such crossings or intersection reasonably necessary to carry out
and shall grant the Board or its the business and purposes for
representative, the proper authority which it was organized, or which,
for the execution of such work. The from time to time, may be declared
Corporation is hereby given the by the Board to be necessary,
right of way to locate, construct useful, incidental or auxiliary to
and maintain such works over and accomplish the said purpose;
“(m) To cooperate with, and to That in determining the rate of return,
coordinate its operations with interest on loans, bonds and other debts shall
those of the National Electrification not be included as expenses. Such rates and
Administration and public service fees shall be effective and enforceable fifteen
entities; (15) days after publication in a newspaper
of general circulation. The Public Service
“(n) To exercise complete jurisdiction Commission shall have exclusive original
and control over watersheds jurisdiction over all cases contesting said rates
surrounding the reservoirs of plants or fees. Any complaint against such rates
and/or projects constructed or or fees shall be filed with the Public Service
proposed to be constructed by the Commission within thirty (30) days after the
Corporation. Upon determination effectivity of such rates or fees, but the filing
by the Corporation of the areas of such complaint or action shall not stay the
required for watersheds for a specific effectivity of said rates or fees. The Public
project; the Bureau of Forestry, the Service Commission shall verify the rate base,
Reforestation Administration and and the rate of return computed therefrom,
the Bureau of Lands shall, upon in accordance with the standards herein
written advice by the Corporation, outlined. The Public Service Commission shall
forthwith surrender jurisdiction finish, within sixty (60) calendar days, any and
to the Corporation of all areas all proceedings necessary and/or incidental
embraced within the watersheds, to the case, and shall render its findings or
subject to existing private rights, the decisions thereon within thirty (30) calendar
needs of waterworks systems, and days after said case is submitted for decision.
the requirements of domestic water
supply; “In cases where the decision is against
the fixed rates or fees, excess payments
“(o) In the prosecution and shall be reimbursed and/or credited to
maintenance of its projects, the future payments, in the discretion of the
Corporation shall adopt measures Commission.
to prevent environmental pollution
and promote the conservation, “The decision of the Public Service Commission
development and maximum shall be appealable to the Supreme Court in
utilization of natural resources; and accordance with the provisions of the Rules
of Court.
“(p) Generally, to exercise all the
powers of a corporation under the “The Corporation shall charge in any
Corporation Law insofar as they are interconnected system a uniform schedule of
not inconsistent with the provisions rates for all its customers that fall within the
of this Act. same classification.
“SECTION 4. Fixing of Rates by the Board and “The rates to be charged in any
Review by the Public Service Commission. interconnected system in Luzon, Visayas, and
– The Board shall fix the rates and fees to Mindanao, respectively, shall be determined
be charged by the Corporation so that the independently from each other, and expenses
Corporation’s rate of return shall be not or fixed investments in any one region shall
more than ten per centum (10%) on a rate not be utilized for purposes of fixing the rates
base composed of the sum of its net assets to be charged in another region, but shall
in operation as revalued from time to time be determined in the light of conditions and
plus two months’ operating capital: Provided, circumstances obtaining in each region.

“SECTION 5. Capital Stock of the Corporation. in business management and finance, or
– The authorized capital stock of the in law, particularly in the field of corporate
Corporation is three hundred million pesos practice, with at least ten years actual and
divided into three million shares having a distinguished experience in their respective
par value of one hundred pesos each, which fields of expertise, or a recognized labor,
shares are not to be transferred, negotiated, leader with sufficient training, particularly
pledged, mortgaged, or otherwise given as in labor-management relations, and of good
security for the payment of any obligation. moral character. The regional representatives
The said capital stock has been subscribed appointed by the President of the Philippines
and paid wholly by the Government of shall be residents of the regions they
the Philippines in accordance with the represent.
provisions of Republic Act Numbered Four
thousand eight hundred ninety-seven. “The members of said Board shall receive
a per diem, of not to exceed three hundred
“SECTION 6. The National Power Board; Its pesos for each regular meeting of the Board
Composition; Compensation of Members; and one hundred pesos for each special
Qualifications; Powers and Duties. – The meeting actually attended by them: Provided,
corporate powers of the Corporation shall That such per diems shall not exceed one
be vested in and exercised by the Board thousand five hundred pesos during any
composed of seven members consisting of month for each member: And, provided,
a chairman, vice-chairman and five directors further, That no other allowances or any form
who, with the exception of the vice-chairman, of compensation shall be paid them, except
shall be appointed by the President of actual expenses in travelling to and from their
the Philippines, with the consent of the residences to attend Board meetings.
Commission on Appointments.
“A majority of the members of the Board shall
“In the appointment of said members, the constitute a quorum for the transaction of
President of the Philippines shall appoint the business of the Board.
one to represent Luzon, one to represent the
Visayas, one to represent Mindanao, one to “The Board shall, moreover, have the
represent labor, and one to represent the following specific powers and duties:
business sector. The labor representative shall
be chosen from at least live recommendees of “(a) To formulate and adopt policies
the employees’ recognized bargaining units in and measures for the management
the Corporation. and operation of the Corporation;
“The General Manager shall be the ex-officio “(b) To adopt an annual and
Vice-Chairman of the Board. supplemental budget of receipts
and expenditures of the Corporation
“The said members of the Board shall serve according to its requirements, which
for terms of three years, except that any may include financial assistance
person appointed to fill a vacancy shall serve of not more than ten thousand
only for the unexpired term of the member pesos each to municipalities which
whom he succeeds. are the site of or contiguous to
watersheds, lakes or natural sources
“Every member of the Board shall possess of hydroelectric power being
any one or combination of the following utilized by the Corporation, subject
qualifications: A duly licensed professional to the approval of the Office of
of recognized competence in engineering, Economic Coordination: Provided,

That copies of the budgets of – The management of the Corporation shall
receipts and expenditures herein be vested in the General Manager, assisted
referred to shall be submitted to the by the Assistant General Manager and
Committee on National Enterprises three regional managers respectively for
and Government Corporations of operations in Luzon, Visayas and Mindanao,
the Senate and the Committee a department chief for finance, a department
on Government Enterprises of chief for engineering and construction, a
the House of Representatives department chief for administration, and
within fifteen (15) days from the such additional officers and employees as the
transmission thereof to the Office of said Board may provide. For this purpose,
Economic Coordination; the General Manager shall have the following
powers and duties:
“(c) Subject to the provisions of
existing laws and regulations and upon “(a) To execute and administer the
the recommendation of the general policies and measures approved by
Manager, to organize, reorganize the Board, and have the responsibility
and determine the Corporation’s for the efficient discharge of
staffing pattern and the number of management functions;
personnel, to fix their salaries and
to define their powers and duties; “(b) To submit for the consideration
of the Board such other policies and
“(d) To appoint and fix the measures which he deems necessary
compensation of the General to carry out the purposes and
Manager, subject to the approval of provisions of this Act;
the President of the Philippines, and
to appoint and fix the compensation “(c) To direct and supervise the
of the Assistant General Manager, operation and internal administration
regional managers, and department of the Corporation and, for this
chiefs with the approval of the purpose, may delegate some or any
Administrator of Economic of his administrative responsibilities
Coordination; and duties to other officers of the
Corporation;
“(e) For cause, to suspend, or
remove, by a majority vote of all “(d) Subject to the guidelines and
members, the General Manager, policies set up by the Board, to
with the approval of the President appoint and fix the number and
of the Philippines, and the Assistant compensation of subordinate
General Manager, regional managers officials and employees of the
and department chiefs, with the Corporation; and, for cause, to
approval of the Office of Economic remove, suspend or otherwise
Coordination; and discipline, any subordinate employee
with the approval of the Board;
“(f) To adopt and set down guidelines
for the employment of personnel “(e) To prepare an annual report on
on the basis of merit, technical the activities of the Corporation at the
competence arid moral character. close of each fiscal year and submit
a copy thereof to the President of
“SECTION 7. The General Manager; His Powers the Philippines, President of the
and Duties; Regional Managers and Other Senate, and Speaker of the House of
Officers and Employees of the Corporation. Representatives and to the chairman
of the committee concerned in “(a) Domestic Indebtedness. –
the Senate and in the House of Whenever the Board deems it
Representatives: Provided, That the necessary for the Corporation to
Corporation shall similarly submit to incur indebtedness or to issue bonds
the respective chairman of the said to carry out the purpose for which
committees of Congress a report of its the Corporation has been organized,
operations and financial statements it shall, by resolution, declare and
within fifteen (15) days from the state the purpose for which the
end of every quarter: And provided, proposed debt is to be incurred and
further, That said committees, either the conditions of the bonds. In order
motu proprio or upon the request that such resolution be valid, it shall
of any of their members, or of any be passed by the affirmative vote of
Member of Congress, as the case at least four members of the Board
may be, shall have the authority to and approved by the President of the
look into all the matters relative to Philippines upon recommendation of
the financial and business operations the Secretary of Finance.
and expenditures of the Corporation;
“The bonds shall be issued under
“(f) To exercise such other powers the following conditions: (1) they
and duties as may be vested in him shall be in registered form and
by the Board from time to time. In transferable at the Office of the
the case of absence or disability of Treasurer of the Philippines; (2) they
the General Manager, the Assistant shall not be sold at less than par;
General Manager shall act in his (3) they shall be payable ten years
place. or more from date of issue as may
be determined by the Secretary of
“Under the supervision and control of the Finance before their issuance but
General Manager, the regional managers may be redeemable, at the pleasure
shall take charge of the operations of the of the Board, after five years from
Corporation as well as its power development such date of issue; (4) they shall
program within their respective regions, bear interest at an annual rate to be
and, subject to such conditions as the Board determined before their issuance
may prescribe upon recommendation of by the Secretary of Finance; (5) the
the General Manager, shall have as much interest may be payable quarterly,
autonomy as shall ensure the efficient semi-annually or annually as may
conduct of the Corporation’s affairs. be determined by the Secretary of
Finance before the issuance of the
“The Auditor General shall be ex-officio bonds; and (6) both principal and
Auditor of the Corporation. The provisions interest shall be payable in legal
of Section five hundred eighty-four of the tender of the Philippines.
Revised Administrative Code, as amended
by Section one of Republic Act Numbered “The bonds issued under the
Twenty-two hundred sixty-six, shall apply to authority of this subsection shall be
the office of the representative of the Auditor exempt from the payment of all taxes
General in the Corporation. by the Republic of the Philippines, or
by any authority, branch, division or
“SECTION 8. Authority to Incur Indebtedness political subdivision thereof which
and Issue Bonds; Their Conditions, Privileges facts shall be stated upon the face
and Exemptions, Sinking Funds; Guarantee. – of said bonds. Said bonds shall
be receivable as security in any
transaction with the Government in National Government under this
which such security is required. Act: And, provided, finally, That the
Corporation may periodically make
“A sinking fund shall be created, the partial payments to the National
total thereof at each annual due date Government out of the said reserves.
of the bonds shall be equal to an
amount of annuity earning an annual “The total principal indebtedness
interest of nine-tenths of the rate of of the Corporation under this
interest of the bonds as fixed by the subsection, exclusive of interest,
Secretary of Finance. The sinking shall not at any time exceed five
fund shall be under the custody of hundred million pesos.
the Treasurer of the Philippines,
who shall invest the same subject to “(b) Foreign Loans. – The Corporation
the approval of the Board and the is hereby authorized to contract
Secretary of Finance. loans, credits, any convertible
foreign currency or capital goods,
‘The Republic of the Philippines and indebtedness from time to time
hereby guarantees the payment by from foreign governments, or any
the Corporation of both the principal international financial institutions or
and the interest of the bonds issued fund sources the total outstanding
by said Corporation by virtue of this amount of which, exclusive of
Act, and shall pay such principal interests, shall not exceed two
and interest in case the Corporation hundred million United States
fails to do so, and there are hereby dollars or the equivalent thereof
appropriated, out of the general in other currencies, on such terms
funds in the National Treasury not and conditions as it shall deem
otherwise appropriated, the sums appropriate for the accomplishment
necessary to make the payments of its purposes and to enter into
guaranteed by this Act: Provided, and execute agreements and other
That the sums so paid by the Republic documents specifying such terms
of the Philippines shall be refunded and conditions.
by the Corporation: Provided,
further, That the Corporation shall “The President of the Philippines,
set aside five per centum of its annual by himself, or through the Secretary
net operating revenues before of Finance or the Governor of the
interests as a reserve or sinking fund Central Bank, is hereby authorized to
to answer for amounts advanced to negotiate and contract with foreign
it by the National Government for governments or any international
any loan, credit and indebtedness financial institutions, in the name
contracted by the former for which and on behalf of the Corporation,
the latter shall be held answerable as one or several loans, for the purpose
primary obligor or guarantor under of assisting in the reconstruction, or
the provisions of this Act: Provided, promoting the development, of the
furthermore, That the setting aside economy of the country.
of the amounts mentioned herein
shall automatically cease the “The President of the Philippines, by
moment the accumulated sinking himself, or through the Secretary of
fund or reserve exceeds the amounts Finance or the Governor of the Central
advanced to the Corporation by the Bank, is hereby further authorized

to guarantee, absolutely and and estimates of the cost of the proposed
unconditionally, as primary obligor development and the estimated income to
and not as surety merely, in the name be derived therefrom shall be submitted by
and on behalf of the Republic of the the General Manager.
Philippines, the payment of the loan
or loans herein authorized as well “The Board may thereupon, at its discretion,
as the performance of all or any of designate a consulting board composed of
the obligations undertaken by the two competent and impartial engineers and
Corporation in the territory of the one competent economist to pass upon the
Republic of the Philippines pursuant different aspects of the project and comment
to loan agreements entered into on the report of the General Manager. The
with foreign governments or any Board shall, with the said report and comment
international financial institutions. in view, decide whether or not the project
shall be constructed, and what changes, if
“In the negotiation and contracting any, shall be made in the scheme proposed
of any loan, credit or indebtedness by the General Manager.
under this subsection, the provision
of Section four-a of Republic Act “SECTION 10. Construction or Repair Work
Numbered Four thousand eight Awarded upon Public Bidding; Exceptions.
hundred sixty, as provided in Section – All work of construction or repair of the
five of Republic Act Numbered Six Corporation involving an estimated cost of
thousand one hundred forty-two, seventy-five thousand pesos or more shall be
shall apply. let by the General Manager, with the approval
of the Board, to the responsible bidder who
“The loans, credits and indebtedness made the lowest or most advantageous
contracted under this subsection and bid. Notice to bidders shall be published as
the payment of the principal, interest provided by law. In case no satisfactory bid is
and other charges thereon, as well received, the General Manager may proceed
as the importation of machinery, to advertise anew, or with the approval of the
equipment, materials and supplies Board, do the work by administration. Before
by the Corporation, paid from the award of contract is made, the General
proceeds of any loan, credit or Manager shall require the contractor to
indebtedness incurred under this give an adequate bond to secure the proper
Act, shall also be exempt from all accomplishment of the work under contract
taxes, fees, imposts, other charges and to satisfy all obligations for materials
and restrictions, including import used and labor employed upon the same:
restrictions, by the Republic of the Provided, That any repair, reconstruction or
Philippines, or any of its agencies and other work of an emergency nature may be
political subdivisions. authorized by the Board to be undertaken by
administration or by contract: And, provided,
“SECTION 9. Construction of Power Projects further, That any single work of construction
Recommended by the General Manager. – or repair involving an estimated total cost
Upon determination by the General Manager, of less than seventy-five thousand pesos
on his own initiative or as recommended by may, at the option of the General Manager,
the regional manager concerned, that the be authorized by him to be undertaken by
construction of any project by the Corporation administration or by “pacquiao” contract
is advisable, a report to the Board, on the after a canvass of the market to determine
engineering and economic feasibility of the the lowest or most advantageous price.
project together with preliminary plans

“SECTION 11. Penalty for Destroying, shall be non-profit and shall devote all its
Injuring or Interfering with any project of returns from its capital investment, as well
the Corporation, or maliciously Interfering as excess revenues from its operation, for
with any Person in the Discharge of his expansion. To enable the Corporation to
Duties Connected therewith. – Any person or pay its indebtedness and obligations and in
persons who shall maliciously destroy, injure, furtherance and effective implementation
or interfere with any canal, raceway, ditch, of the policy enunciated in Section one of
lock, pier, inlet, crib, bulkhead, dam, gate, this Act, the Corporation is hereby declared
sluice, reservoir, aqueduct, conduit, pipes, exempt:
culvert, post, abutment, conductor, cable-
wire, insulator, weir, benchmark, monument, “(a) From the payment of all taxes,
or other works, appliance, machinery, duties, fees, imposts, charges,
building or property of the Corporation, or costs and service fees in any court
who shall maliciously do any act which shall or administrative proceedings in
injuriously affect the quantity or quality of the which it may be a party, restrictions
water or electrical energy of the Corporation and duties to the Republic of the
or the supply, transmission, measurement, or Philippines, its provinces, cities,
regulation thereof, or who shall maliciously municipalities and other government
interfere with any person engaged in the agencies and instrumentalities;
discharge of duties connected therewith,
or who shall maliciously prevent, obstruct “(b) From all income taxes, franchise
and interfere with the survey, works and the taxes and realty taxes to be paid
construction of access road and transmission to the National Government, its
lines or any related works of the Corporation, provinces, cities, municipalities and
shall be guilty of felony and punished with other government agencies and
a fine ranging from one to five thousand instrumentalities;
pesos or with imprisonment ranging from
one to five years, or both such fine and “(c) From all import duties,
imprisonment, at the discretion of the Court, compensating taxes and advanced
and any injured party shall have the right sales tax, and wharfage fees on
to recover all damages suffered and cost of import of foreign goods required for
suit in a separate civil action in any court of its operations and projects; and
competent jurisdiction.
“(d) From all taxes, duties, fees,
“SECTION 12. Appropriation of Public imposts, and all other charges
Waters. – Subject to existing rights, all imposed by the Republic of the
unappropriated public waters which may Philippines, its provinces, cities,
be used and developed for hydraulic power municipalities and other government
purposes shall be granted to the Corporation agencies and instrumentalities, on
by the Secretary of Public Works and all petroleum products used by
Communications: Provided, That in case of the Corporation in the generation,
conflict with the needs for domestic water transmission, utilization, and sale of
supply, the latter shall prevail. electric power.
“SECTION 13. Non-profit Character of the “SECTION 14. Contract with Franchise Holders,
Corporation; Exemption from all Taxes, Conditions of. – The Corporation shall, in any
Duties, Fees, Imposts and other Charges contract for the supply of electric power to a
by Government and Governmental franchise holder, require as a condition that
Instrumentalities. – The Corporation the franchise holder, if it receives at least sixty

per cent of its electric power and energy from such cooperatives, the Corporation shall be
the Corporation, shall not realize a rate of governed by the provisions of the said Act
return of more than twelve per cent annually and the specific legislative franchise of such
on a rate base composed of the sum of its cooperatives.
net assets in operation revalued from time
to time, plus two-month operating capital, “SECTION 16. Non-impairment of Collective
subject to the non-impairment-of-obligations- Bargaining Agreements and Rights of
of-contracts provision of the Constitution: Labor Unions. – Nothing in this Act shall
Provided, That in determining the rate of be “construed to impair existing collective
return, interest on loans, bonds and other bargaining agreements with the labor unions
debts shall not be included as expenses. It in the Corporation or the right of employees to
shall likewise be a condition in the contract organize and bargain collectively or diminish
that the Corporation shall cancel or revoke the rights of labor in the Corporation under
the contract upon judgment of the Public the Industrial Peace Act or other labor laws.”
Service Commission after due hearing and
upon a showing by customers of the franchise “SECTION 17. Separability Clause. – The
holder that household electrical appliances, provisions of this Act are hereby declared to
have been damaged resulting from deliberate be separable, and in the event any one or more
overloading by, or power deficiency of, the of such provisions are held unconstitutional,
franchise holder. The Corporation shall renew they shall not affect the validity of other
all existing contracts with franchise holders provisions.
for the supply of electric power and energy in
order to give effect to the provisions hereof. “SECTION 18. Repealing Clause. – All laws,
executive and administrative orders, or parts
“SECTION 15. Laws Governing Relations of thereof, inconsistent with any provision of
Corporation with Electric Cooperatives. – this Act are hereby repealed or modified
Nothing in this Act, shall, directly or indirectly, accordingly.”
alter, modify, or repeal the provisions of
Republic Act Numbered Six thousand thirty- SECTION 2. Effective Date. – This Act shall
eight, particularly in respect of the rights of take effect upon its approval.
electric cooperatives registered under the
same Act. In its contracts and relations with Approved, September 10, 1971


AMENDING CERTAIN SECTIONS OF REPUBLIC ACT NUMBERED SIXTY-THREE HUNDRED NINETY-
FIVE, ENTITLED “AN ACT REVISING THE CHARTER OF THE NATIONAL POWER CORPORATION”

WHEREAS, under Republic Act No. 6395, it has acquisition of existing generation facilities in
been declared that: (1) the comprehensive areas embraced by grids set up by NPC;
development, utilization and conservation of
Philippine water resources for all beneficial WHEREAS, in order to attain expeditiously
uses, including power generation, and (2) the the declared objective of total electrification
total electrification of the Philippines through of the country and to implement the basic
the development of power from all sources policies established under Presidential
to meet the needs of industrial development Decree No. 40, certain sections of Republic
and dispersal and the needs of rural Act Numbered Sixty-Three Hundred Ninety-
electrification are primary objectives of the Five should be amended;
nation which shall be pursued coordinately
and supported by all instrumentalities and NOW, THEREFORE, I, FERDINAND E. MARCOS,
agencies of the government, including its President of the Philippines, by virtue of the
financial institutions; powers vested in me by the Constitution as
Commander-in-Chief of the Armed Forces of
WHEREAS, under Presidential Decree No. the Philippines, and pursuant to Proclamation
40, dated November 7, 1972, certain basic No. 1081, dated September 21, 1972, and
policies for the attainment of the objectives General Order No. 1, dated September 22,
for the speedy electrification of the country 1972, do hereby amend certain sections
more particularly the rural areas, have been or provisions of the Charter of the National
established; Power Corporation, Republic Act Numbered
Sixty-Three Hundred Ninety-Five, to wit:
WHEREAS, under the basic policies for the
electric power industry established under SECTION 1. Section 3 (g) of the Charter of the
Presidential Decree No. 40, the National National Power Corporation, Republic Act
Power Corporation (NPC) is also given Numbered Sixty-Three Hundred Ninety-Five,
the responsibility for the setting up of is hereby amended to read as follows:
transmission line grids and the construction
of associated generation facilities in Luzon, “(g) To construct, operate and
Mindanao, and major islands of the country, maintain power plants, auxiliary
including the Visayas and to own and operate plants, dams, reservoirs, pipes,
as a single integrated system all generating mains, transmission lines, power
facilities supplying electric power to the stations and substations, and other
entire area embraced by any grid set up by works for the purpose of developing
the NPC; hydraulic power from any river,
creek, lake, spring and waterfall in
WHEREAS, the additional responsibilities and the Philippines and supplying such
expanded activities of NPC under Presidential power to the inhabitants thereof;
Decree No. 40 will more than treble the capital to acquire, construct, install,
requirements needed for the expansion maintain, operate, and improve
of generation and transmission facilities, gas, oil or steam engines, and/or
in addition to the funds necessary for the other prime movers, generators

and machinery in plants and/or “(i) To construct works across, or
auxiliary plants for the production of otherwise, any steam, watercourse,
electric power; to establish, develop, canal, ditch, flume, street, avenue,
operate, maintain and administer highway or railway of private and
power and lighting system for the public ownership, as the location of
transmission and utilization of its said works may require: Provided,
power generation; to sell electric That said works be constructed in
power in bulk to (1) industrial such a manner as not to endanger life
enterprises, (2) city, municipal or property; and Provided, further,
or provincial systems and other That the stream, watercourse, canal,
government institutions, (3) electric ditch, flume, street, avenue, highway
cooperatives, (4) franchise holders, or railway so crossed or intersected
and (5) real estate subdivisions; be restored as near as possible to
Provided, That the sale of power their former state, or in a manner
in bulk to industrial enterprises not to impair unnecessarily their
and real estate subdivisions may usefulness. Every person or entity
be undertaken by the Corporation whose right of way or property is
when the power requirement of lawfully crossed or intersected by
such enterprises or real estate said works shall not obstruct any
subdivisions is not less than 100 such crossings or intersections and
kilowatts, when in the judgment of shall grant the Corporation or its
the Board of Power and Waterworks representative, the proper authority
the cooperative supplying electric for the execution of such work. The
power or franchise holder of the Corporation is hereby given the
area is not in a position by itself, or right of way to locate, construct,
fails or refuses to adequately supply and maintain such works over and
such power requirement, unless the throughout the lands owned by
electric cooperative or franchise the Republic of the Philippines or
holder consents thereto: Provided, any of its branches and political
further, That no restriction shall subdivisions. The Corporation or
apply to sale of power in bulk to its representatives may also enter
enterprises registered with the Board upon private property in the lawful
of Investments, wherein the cost of performance or prosecution of its
power, based on the Corporation’s business or purposes, including the
then prevail-tariffs, is more than ten construction of the transmission
per cent (10%) of the total production lines thereon; Provided, That the
cost of the goods or commodities owner of such private property shall
produced; Provided, finally, That be compensated as follows:
the Corporation shall continue to sell
electricity to industrial enterprises “(a) In case only an easement of
under existing contracts, and provide right of way for a transmission line
for the collection of charges for any is required, then only a nominal
service rendered;” easement fee shall be paid which
shall be in an amount equivalent to
SECTION 2. Section 3 (i) of the Charter of the not more than ten per cent of the
National Power Corporation, Republic Act value of the land or portion thereof
Numbered Sixty-Three Hundred Ninety-Five, required for the right of way of the
is hereby amended to read as follows: line, based on the tax declaration
that is valid and effective at the
time of the filing of the complaint
for eminent domain or actual entry Power Corporation, Republic Act Numbered
into the property by the Corporation, Sixty-Three Hundred Ninety-Five, is hereby
whichever is earlier; amended to read as follows:
“(b) In case the land shall be acquired “(l) To exercise such powers and do
by purchase, the fair market value such things as may be reasonably
thereof, which shall be the value of necessary to carry out the business
the land based on the tax declaration and purposes for which it was
that is valid and effective at the time organized, or which, from time to
of the filing of the complaint for time, may be declared by the Board
eminent domain, or the taking of said to be necessary, useful, incidental
land by the Corporation, whichever or auxiliary to accomplish the said
is earlier; and purpose, including the establishment
of subsidiaries;
“(c) In addition, the owner shall be
compensated for the improvements “(m) To cooperate with, and to
such as houses, buildings, structures, coordinate its operations with
and/or agricultural crops and the those of the Power Development
like, actually damaged during Council, the National Electrification
the construction, operation and Administration and public service
maintenance of such works on the entities;
land, in amounts based on the value
of such improvements appearing xxx xxx xxx
on the tax declaration that is valid
and effective and/or the prevailing “(o) In the prosecution and
valuation of such agricultural crops maintenance of its projects and
and the like made by the appropriate plants, the Corporation shall adopt
appraisal body authorized by law at measures to prevent environmental
the time of filing of the complaint pollution and enhance the
for eminent domain or taking of said conservation, development and
improvements by the Corporation, maximum utilization of natural
whichever is earlier; resources, including the improvement
and beautification of its reservoirs
Provided, further, That any action and other areas to promote tourism
for compensation and/or damages and related purposes, and to provide
under (a), (b), and (c) above, is filed for the necessary corporate funds
within five years after the rights of therefor; and”
way, transmission lines, substations,
plants or other facilities shall have SECTION 4. Section 4, fourth paragraph of the
been established; Provided, finally, Charter of the National Power Corporation,
That after the said period no suit Republic Act Numbered Sixty-Three Hundred
shall be brought to question the said Ninety-Five, is hereby amended to read as
rights of way, transmission lines, follows:
substations, plants or other facilities,
nor the amounts of compensation “The Corporation shall charge in any
and/or damages involved.” interconnected system a uniform
schedule of rates for all its customers
SECTION 3. Section 3, paragraphs (l), (m) that fall within the same classification.
and (o) of the Charter of the National Towards this end, the Corporation

shall prescribe a standard form of Eighty-Nine, shall be additional paid-
contract and appropriate rules and in subscription of the Government
regulations for the sale of electricity, of the Philippines for two hundred
which shall be uniformly applied ninety-two thousand six hundred
and become effective on all power seventy-six shares of stock of said
customers after they are duly capital stock;
notified or fifteen days after their
publication in newspapers of general “(b) The balance of said subscription
circulation. All subsisting power shall be paid by the conversion into
contracts are hereby considered equity capital of the existing bonded
revised to give immediate effectivity indebtedness, cost of reparations
to this provisions.” goods that may be allocated to
the Corporation in the future, and
SECTION 5. Section 5 of the Charter of the surpluses of the Corporation, and in
National Power Corporation, Republic Act the absence thereof, from bond issue
Numbered Sixty-Three Hundred Ninety-Five, upon request of the Corporation for
is hereby amended to read as follows: specific projects duly approved from
time to time by the President of the
“SEC. 5. Capital Stock of the Philippines.”
Corporation. – The authorized capital
stock of the Corporation is two billion SECTION 6. Section 6, sixth paragraph of the
pesos divided into twenty million Charter of the National Power Corporation,
shares having a par value of one Republic Act Numbered Sixty-Three Hundred
hundred pesos each, which shares Ninety-Five, is hereby amended to read as
are not to be transferred, negotiated, follows:
pledged, mortgaged or otherwise
given as security for the payment “The members of said Board shall
of any obligation. The sum of three receive a per diem of not to exceed
hundred million pesos of said capital three hundred pesos for each
stock has been subscribed and paid regular meeting of the board and
wholly by the Government of the one hundred pesos for each special
Philippines in accordance with the meeting actually attended by them:
provisions of Republic Act Numbered Provided, That such per diems
Four Thousand Eight Hundred shall not exceed one thousand five
Ninety-Seven. hundred pesos during any month for
each member.”
“The remaining one billion seven
hundred million shall be subscribed SECTION 7. Section 6, paragraphs (b), (c),
by the Government of the Philippines (d), and (e) of the Charter of the National
and shall be paid as follows: Power Corporation, Republic Act Numbered
Sixty-Three Hundred Ninety-Five, is hereby
“(a) The sum of twenty-nine million amended to read as follows:
two hundred sixty-seven thousand
six hundred pesos representing “(b) To adopt an annual and
outstanding cost and interest supplemental budget of receipts
of reparation goods procured and expenditures of the Corporation
by the Corporation pursuant to according to its requirements, which
the provisions of Republic Act may include financial assistance of
Numbered Seventeen Hundred not more than ten thousand pesos

each to municipalities that are “The total principal indebtedness
contiguous to watersheds, lakes or of the Corporation under this
natural sources which are proven to subsection, exclusive of interest,
have suffered material damages due shall not at any time exceed three
to the harnessing of hydroelectric billion pesos.”
power being utilized by the
Corporation, subject to the approval SECTION 9. Section 8 (b) of the Charter of the
of the Office of the President; National Power Corporation, Republic Act
Provided, That copies of the budgets Numbered Sixty-Three Hundred Ninety-Five,
of receipts and expenditures herein is hereby amended to read as follows:
referred to shall be submitted to the
National Assembly within fifteen (15) “(b) Foreign Loans. – The Corporation
days from the transmission thereof is hereby authorized to contract
to the Office of the President; loans, credits, any convertible
foreign currency or capital goods,
“(c) Subject to the provisions of and indebtedness from time to time
existing laws and regulations and from foreign governments, or any
upon the recommendation of the international financial institutions
General Manager, to organize, or funds sources, or to issue bonds,
reorganize in a manner other the total outstanding amount of
than what is provided for under which, exclusive of interests, shall
this Act and Section 3 of Republic not exceed one billion United States
Act No. 4177 and determine the dollars or the equivalent thereof
Corporation’s staffing pattern and in other currencies, on such terms
the number of personnel, to fix their and conditions as it shall deem
salaries and to define their power appropriate for the accomplishment
and duties subject to approval of of its purposes and to enter into
higher authorities; and execute agreements and other
documents specifying such terms
“(d) To appoint and fix the and conditions.
compensation of the General
Manager, Assistant General Manager, “The President of the Philippines,
regional managers and department by himself, or through his duly
chiefs subject to the approval of the authorized representative, is hereby
President of the Philippines; authorized to negotiate and contract
with foreign governments or any
“(e) For cause to suspend or remove international financing institution
by a majority vote of all members, or fund sources in the name and
with the approval of the President of on behalf of the Corporation, one
the Philippines, the General Manager, or several loans, for the purpose of
Assistant General Manager, regional assisting in the reconstruction, or
managers and department chiefs;” promoting the development of the
economy of the country.
SECTION 8. Section 8 (a), last paragraph, of the
Charter of the National Power Corporation, “The President of the Philippines,
Republic Act Numbered Sixty-Three Hundred by himself, or through his duly
Ninety-Five, is hereby amended to read as authorized representative, is hereby
follows: further authorized to guarantee,
absolutely and unconditionally, as

primary obligor and not as surety agencies and instrumentalities,
merely, in the name and on behalf including the taxes, duties, fees,
of the Republic of the Philippines, imposts, and other charges provided
the payment of the loans, credits, for under the Tariff and Customs
indebtedness and bonds issued up to Code of the Philippines, Republic
the amount herein authorized, which Act Numbered Nineteen Hundred
shall be over and above the amount Thirty-Seven, as amended, and as
which the President of the Philippines further amended by Presidential
is authorized to guarantee under Decree No. 34, dated October 27,
Republic Act Numbered Sixty-One 1972, and Presidential Decree No.
Hundred Forty-Two, as amended, as 69, dated November 24, 1972, and
well as the performance of all or any costs and service fees in any court or
of the obligations undertaken by the administrative proceedings in which
Corporation in the territory of the it may be a party;
Republic of the Philippines pursuant
to loan agreements entered into xxx xxx xxx
with foreign governments or any
international financial institutions or “(d) From all taxes, duties, fees,
fund sources. imposts, and all other charges
imposed directly or indirectly by
“The loans, credits and indebtedness the Republic of the Philippines, its
contracted under this subsection provinces, cities, municipalities and
and the payment of the principal, other government agencies and
interest and other charges thereon, instrumentalities, on all petroleum
as well as the importation of products used by the Corporation
machinery, equipment, materials, in the generation, transmission,
supplies and services, by the utilization and sale of electric power.”
Corporation, paid from the proceeds
of any loan, credit or indebtedness SECTION 11. A new section shall be inserted
incurred under this Act, shall also be to be known as Section 15-A of the Charter of
exempt from all direct and indirect the National Power Corporation, Republic Act
taxes, fees, imposts, other charges Numbered Sixty-Three Hundred Ninety-Five,
and restrictions, including import which provides as follows:
restrictions previously and presently
imposed, and to be imposed by “SEC. 15-A. The Corporation shall be
the Republic of the Philippines, under the direct supervision of the
or any of its agencies and political Office of the President and all legal
subdivisions.” matters shall be handled by the Chief
Legal Counsel of the Corporation;
SECTION 10. Section 13, paragraphs provided, that the Solicitor General’s
(a) and (d), of the Charter of the National Office shall have supervision in the
Power Corporation, Republic Act Numbered handling of court cases only of the
Sixty-Three Hundred Ninety-Five, is hereby Corporation.
“Considering that the operation
“(a) From the payment of all taxes, of the business of the Corporation
duties, fees, imposts, charges and affects public convenience and
restrictions to the Republic of the welfare, all industrial disputes in the
Philippines, its provinces, cities, Corporation shall be settled by the
municipalities and other government compulsory arbitration.”
SECTION 12. This Decree is hereby made SECTION 13. This Decree shall take effect
part of the law of the land and provisions of immediately.
existing laws, executive and administrative
orders, or parts thereof, in conflict with this Done in the City of Manila, this 22nd day of
Decree are hereby modified and repealed. January, in the year of Our Lord, nineteen
hundred and seventy-four.


FURTHER AMENDING REPUBLIC ACT NUMBERED SIXTY-THREE HUNDRED NINETY-FIVE, ENTITLED
“AN ACT REVISING THE CHARTER OF THE NATIONAL POWER CORPORATION,” AS AMENDED

I, FERDINAND E. MARCOS, President of the utilization of its power generation;

Philippines, by virtue of the powers vested to sell electric power in bulk to
in me by the Constitution as Commander-in- (1) industrial enterprises, (2) city,
Chief of the Armed Forces of the Philippines, municipal or provincial systems
and pursuant to Proclamation No. 1081, dated and other government institutions,
September 21, 1972, and General Order No. (3) electric cooperatives, (4)
1, dated September 22, 1972, as amended, franchise holders, and (5) real
do hereby further amend Republic Act No. estate subdivisions; Provided,
6395, as amended, particularly Section 1 (g), That the sale of power in bulk to
to read as follows: industrial enterprises and real estate
subdivisions may be undertaken by
“(g) To construct, operate and the Corporation when the power
maintain power plants, auxiliary requirement of such enterprises or
plants, dams, reservoirs, pipes, real estate subdivisions is not less
mains, transmission lines, power than 100 kilowatts; Provided, further,
stations and substations, and other That no restriction shall apply to
works for the purpose of developing sale of power in bulk to enterprises
hydraulic power from any river, registered with the Board of
creek, lake, spring and waterfall in Investments; Provided, finally, That
the Philippines and supplying such the Corporation shall continue to sell
power to the inhabitants thereof; to electricity to industrial enterprises
acquire, construct, install, maintain, under existing contracts, and provide
operate, and improve gas, oil or for the collection of charges for any
steam engines, and/or other prime service rendered;”
movers, generators and machinery
in plants and/or auxiliary plants for Done in the City of Manila, this 26th day of
the production of electric power; to February, in the year of Our Lord, nineteen
establish, develop, operate, maintain hundred and seventy-four.
and administer power and lighting
system for the transmission and


APPROPRIATING FUNDS FOR THE PAYMENT OF THE BALANCE OF THE UNPAID SUBSCRIPTION OF
THE GOVERNMENT TO THE CAPITAL STOCK OF THE NATIONAL POWER CORPORATION
WHEREAS, the present world-wide energy hereby further amended to read as follows:
crisis underscores the critical need for the
development of local indigenous energy “(b) The balance of said subscription
sources: geothermal, coal, hydro and nuclear shall be paid by the conversion into
power; equity capital of the existing bonded
indebtedness, cost of reparations
WHEREAS, the National Power Corporation goods that may be allocated in
is the primary agency of the Government the future, and surpluses of the
called upon to undertake the development corporation, and in the absence
of hydroelectric generation of power and thereof, from an annual appropriation
the production of electricity from nuclear, of not less than Two Hundred Million
geothermal and other sources as well as Pesos which is hereby made out of
the transmission of electric power on a any funds in the National Treasury
nationwide basis; not otherwise appropriated, be
they collections from any or all taxes
WHEREAS, under Presidential Decree No. accruing to the General Fund or
380 amending certain sections of Republic proceeds from loans, the issuance of
Act No. 6395, entitled “An Act Revising the bonds, treasury bills or notes which
Charter of the National Power Corporation”, are hereby authorized to be incurred
the NPC has an authorized capital stock of P2 or to be issued by the Secretary of
billion fully subscribed by the Government Finance for the purpose, such annual
of which P 818.3 million has been paid and appropriation to be programmed and
except for the conversion into equity capital released by the Budget Commission
of the existing bonded indebtedness, cost of in accordance with the schedule of
reparations goods that may be allocated to cash requirements to be submitted
the Corporation in the future, and surpluses of by the Corporation: Provided, That
the corporation, and in the absence thereof, this annual appropriation of not less
from bond issues, there is no appropriation than Two Hundred Million Pesos
provided for the continuous payment of and the programming and release
the balance of the unpaid subscription of thereof shall remain in force until the
the Government to the capital stock of the balance of the unpaid subscription of
Corporation; the Government to the capital stock
of the Corporation shall have been
NOW, THEREFORE, I, FERDINAND E. MARCOS, paid in full.”
President of the Philippines, by virtue of the
powers in me vested by the Constitution do SECTION 2. This Decree shall take effect
order and decree that: immediately.

SECTION 1. Section 5 (b) of the Charter of Done in the City of Manila, this 31st of July in
the National Power Corporation, Presidential the year of Our Lord, nineteen hundred and
Decree Numbered Three Hundred Eighty, is seventy-five.



FURTHER AMENDING CERTAIN SECTIONS OF REPUBLIC ACT NUMBERED SIXTY-THREE HUNDRED
NINETY-FIVE ENTITLED, “AN ACT REVISING THE CHARTER OF THE NATIONAL POWER CORPORATION”,
AS AMENDED BY PRESIDENTIAL DECREES NOS. 380, 395 AND 758

WHEREAS, in view of the accelerated have become imperative;

expansion program for generation and
transmission facilities which includes nuclear WHEREAS, the substantial expansion of
power generation, the present capitalization the power development program to be
of National Power Corporation (NPC) and the implemented by NPC requires revitalization of
ceilings for domestic and foreign borrowings the organization and flexibility in responding
are deemed insufficient; to the dynamic changes in its program;

WHEREAS, in the implementation of NOW, THEREFORE, I, FERDINAND E. MARCOS,
the power expansion program, NPC is President of the Philippines, by virtue of the
encountering difficulties in the acquisition of powers vested in me by the Constitution, do
land and land rights which unnecessarily stall hereby order and decree as follows:
and delay the prosecution of the works to the
prejudice of the projects; SECTION 1. Section 3 (h) of Republic Act No.
6395, as amended, is hereby deleted. The
WHEREAS, corollary to such right-of-way new section shall read as follows:
problems, a definitive declaration of the just
compensation for the land and land rights “(h) To acquire, promote, hold,
acquired by NPC for its projects should be transfer, sell, lease, rent, mortgage,
affected; encumber and otherwise dispose of
property incident to, or necessary,
WHEREAS, in the application of the tax convenient or proper to carry out the
exemption provisions of the Revised Charter, purposes for which the Corporation
the non-profit character of NPC has not was created.”
been fully utilized because of restrictive
interpretation of the taxing agencies of the SECTION 2. Section 3 (i) of the same Act is
government on said provisions; further amended by deleting paragraphs (a),
(b) and (c) thereof. A new section is hereby
WHEREAS, in view of the changing economic inserted to read as follows:
condition obtaining in the country, the
ceilings provided for in the award of contracts “(i) To construct works across, or
for construction and furnishing of supplies, otherwise, any stream, watercourse,
materials and equipment have been rendered canal, ditch, flume, street, avenue,
inadequate; highway, or railway of private and
public ownership as the location of
WHEREAS, in order to effect the accelerated said works may require; Provided,
expansion program and attain the declared That said works be constructed in
objective of total electrification of the country, such a manner as not to endanger life
further amendments of certain sections or property; And, Provided, further,
of Republic Act No. 6395, as amended by That the stream, watercourse, canal,
Presidential Decrees Nos. 380, 395 and 758, ditch, flume, street, avenue, highway
or railway so crossed or intersected law for instituting condemnation
be restored as near as possible to proceedings by the national,
their former state or in a manner provincial, and municipal
not to impair unnecessarily their government as modified or amended
usefulness. Every person or entity by Presidential Decree No. 42.”
whose right-of-way or property is
lawfully crossed or intersected by SECTION 4. A new section shall be inserted to
said works shall not abstract any be known as Section 3A of the same Act to
such crossings or intersections and read as follows:
shall grant the Corporation or its
representatives, the proper authority “SEC. 3A. In acquiring private
for the execution of such work. The property or private property rights
Corporation is hereby given the through expropriation proceedings
right-of-way to locate, construct, where the land or portion thereof
and maintain such works over and will be traversed by the transmission
throughout the lands owned by lines, only a right-of-way easement
the Republic of the Philippines or thereon shall be acquired when the
any of its branches and political principal purpose for which such
subdivisions. The Corporation or land is actually devoted will not be
its representatives may also enter impaired, and where the land itself
upon private property in the lawful or portion thereof will be needed for
performance or prosecution of its the projects or works, such land or
business or purposes, including the portion thereof as necessary shall be
construction of the transmission acquired.
lines thereon; Provided, That the
owner of such private property In determining the just compensation
shall be paid the just compensation of the property or property sought
therefor in accordance with the to be acquired through expropriation
provisions hereinafter provided; proceedings, the same shall –
Provided, further, That any action by
any person claiming compensation “(a) With respect to the acquired land
and/or damages shall be filed within or portion thereof, not exceed
five (5) years after the right-of-way, the market value declared by
transmission lines, substations, the owner or administrator or
plants or other facilities shall have anyone having legal interest in
been established: Provided, finally, the property, or such market
That after the said period no suit value as determined by the
shall be brought to question the assessor, whichever is lower.
said right-of-way, transmission lines,
substations, plants or other facilities (b) With respect to the acquired
nor the amounts of compensation right-of-way easement over the
and/or damages involved.” land or portion thereof, not to
exceed ten percent (10%) of
SECTION 3. Section 3 (j) of the same Act is the market value declared by
hereby amended to read as follows: the owner or administrator or
anyone having legal interest in
“(j) To exercise the right of eminent the property, or such market
domain for the purpose of this value as determined by the
Act in the manner provided by assessor whichever is lower.

In addition to the just compensation provisions of Republic Act Numbered
for easement of right-of-way, the Four Thousand Eight Hundred Ninety
owner of the land or owner of the Seven.
improvement, as the case may
be, shall be compensated for the The remaining Seven Billion Seven
improvements actually damaged by Hundred Million Pesos shall be
the construction and maintenance subscribed by the Government of
of the transmission lines, in an the Republic of the Philippines and
amount not exceeding the market shall be paid as follows:
value thereof as declared by the
owner or administrator, or anyone xxx xxx xxx
having legal interest in the property,
or such market value as determined SECTION 6. The first paragraph of Section 7 of
by the assessor whichever is lower; the same Act is hereby further amended to
Provided, That in cases any buildings, read as follows:
houses and similar structures are
actually affected by the right-of- “The Management of the Corporation
way for the transmission lines, shall be vested in the General
their transfer, if feasible, shall be Manager, assisted by such number
effected at the expense of the of Assistant General Managers,
Corporation; Provided, further, That officials, officers and employees as
such market value prevailing at the may be deemed necessary by the
time the Corporation gives notice Board of Directors of the Corporation
to the landowner or administrator to meet the management and
or anyone having legal interest in technical manpower requirements
the property, to the effect that his of its expanding power development
land or portion thereof is needed projects, which reorganization shall
for its projects or works shall be be subject to the approval of the
used as basis to determine the just President.”
compensation therefor.”
SECTION 7. Section 8 (a), last paragraph of the
SECTION 5. Section 5 of the same Act is same Act is hereby further amended to read
hereby amended with the first and second as follows:
paragraphs thereof to read as follows:
“The total principal indebtedness
“The authorized capital stock of the of the Corporation under this
Corporation is Eight Billion Pesos subsection, exclusive of interests,
(P 8,000,000,000.00) divided into shall not at any time exceed Twelve
eighty million (P 80,000,000) shares Billion Pesos (P 12,000,000,000.00).”
having a par value of one hundred
pesos each, which shares are not SECTION 8. The first paragraph of Section 8 (b)
to be transferred, negotiated, of the same Act is hereby further amended
pledged, mortgaged or otherwise and a new paragraph shall be inserted
given as security for the payment between the third and fourth paragraph of
of any obligation. The sum of Three said section which shall both read as follows:
Hundred Million Pesos of said capital
stock has been subscribed and paid “(b) Foreign Loans. – The
wholly by the government of the Corporation is hereby authorized to
Philippines in accordance with the contract loans, credit any convertible

foreign currency or capital goods, Provided, finally, That the method
and indebtedness from time to time and procedure in the comparison of
from foreign governments, or any bids shall be the subject of agreement
international financial institutions or between the Philippine Government
fund sources, or to issue bonds, the and the lending institution.
total outstanding amount of which,
exclusive of interests, shall not exceed xxx xxx xxx
Four Billion United States Dollars (US
$ 4,000,000,000.00) or the equivalent SECTION 9. Section 10 of the same Act is
thereof in other currencies, on such hereby amended to read as follows:
terms and conditions as it shall deem
appropriate for the accomplishment “SEC. 10. Construction, Repair Works, or
of its purposes and to enter into Contracts for Services and Furnishing of
and execute agreements and other Supplies, Materials and Equipment Awarded
documents specifying such terms Upon Public Bidding: Exceptions. – All works
and conditions. or construction or repair of the Corporation as
well as contracts for the services and furnishing
xxx xxx xxx of supplies, materials and equipment shall be
awarded by the Corporation in accordance
In the contracting of any loan, credit with ceilings and rules imposed by the
or indebtedness under this Act, the Board; Provided, however, That these do not
President of the Philippines, may, conflict with existing Executive Orders and/or
when necessary, agree to waive or presidential issuance on awards of contracts.”
modify the application of any law
granting preferences or imposing SECTION 10. Section 13 of the same Act is
restrictions on international hereby further amended to read as follows:
competitive bidding, including
among others, Act Numbered Four “SEC. 13. Non-profit Character of
Thousand Two Hundred Thirty-Nine, the Corporation; Exemption from
Commonwealth Act Numbered One All Taxes, Duties, Fees, Imposts and
Hundred Thirty-Eight, the provisions Other Charges by the Government
of Commonwealth Act Numbered and Government Instrumentalities.
Five Hundred Forty-One, Republic – The Government shall be non-
Act Numbered Five Thousand One profit and shall devote all its return
Hundred Eighty-Three, insofar as form its capital investment as well as
such provisions do not pertain to excess revenues from its operation,
constructions primarily for national for expansion. To enable the
defenses or security purposes; Corporation to pay its indebtedness
Provided, however, That as far as and obligations and in furtherance
practicable, utilization of the services and effective implementation of the
of qualified domestic firms in the policy enunciated in Section One of
prosecution of projects financed this Act, the Corporation, including
under this Act shall be encouraged; its subsidiaries, is hereby declared
Provided, further, That in case where exempt from the payment of all
international competitive bidding forms of taxes, duties, fees, imposts
shall be conducted preference of as well as costs and service fees
at least fifteen per centum shall be including filing fees, appeal bonds,
granted in favor of articles, materials supersedeas bonds, in any court or
or supplies of the growth, production administrative proceedings.”
or manufacture of the Philippines;
SECTION 11. This Decree is hereby made part SECTION 12. This Decree shall take effect
of the law of the land, and all provisions of immediately.
existing laws, executives and administrative
orders, or parts thereof in conflict with this Done in the City of Manila, this 27th day
Decree are hereby modified and repealed. of May, in the year of Our Lord, nineteen
hundred and seventy-six.


FURTHER AMENDING CERTAIN SECTIONS OF REPUBLIC ACT NUMBERED SIXTY-THREE HUNDRED
NINETY-FIVE ENTITLED “AN ACT REVISING THE CHARTER OF THE NATIONAL POWER CORPORATION,”
AS AMENDED BY PRESIDENTIAL DECREE NOS. 380, 395, 758 AND 938
“SEC. 5. Capital Stock of the

WHEREAS, the accelerated expansion Corporation. – The authorized
program of the National Power Corporation capital stock of the Corporation
involving as it does the construction of shall be Fifty Billion Pesos (P
generation facilities in Luzon, Visayas and 50,000,000,000.00) divided into
Mindanao and the setting up of transmission Five Hundred Million (500,000,000)
line grids require a greater degree of shares having a par value of One
corporate flexibility in the implementation of Hundred Pesos each, which shares
said power program as well as in corporate are not to be transferred, negotiated,
management; pledged, mortgaged, or otherwise
given as security for the payment
WHEREAS, in pursuing said accelerated of any obligation. The sum of Three
power expansion program for generation Hundred Million Pesos of said capital
and transmission facilities, the present stock has been subscribed and paid
capitalization of P 8 Billion and the ceiling of wholly by the Government of the
foreign borrowing pegged at $ 4 Billion would Philippines in accordance with the
be rendered insufficient by the year 1987 and, provisions of Republic Act Numbered
therefore, a corresponding increase thereon Four Thousand Eight Hundred
is necessary in order that such programs Ninety-Seven.
would be successfully completed.
“The remaining Forty-Nine Billion
NOW, THEREFORE, I, FERDINAND E. MARCOS, Seven Hundred Million Pesos shall
President of the Republic of the Philippines, be subscribed by the Government of
by virtue of the powers vested in me by the the Republic of the Philippines and
Constitution, do hereby order and decree as shall be paid as follows:
follows:
“(a) The sum of Twenty-Nine Million
SECTION 1. Section 5 of Republic Act Two Hundred Sixty-Seven
Numbered Sixty-Three Hundred Ninety-Five, Thousand Six Hundred Pesos
as amended, is hereby amended with the first representing outstanding cost
and second paragraphs thereof duly revised and interest of reparation goods
to read as follows: procured by the Corporation
pursuant to the provisions

of Republic Act Numbered “SEC. 6. The National Power Board;
Seventeen Hundred Eighty- its composition; compensation of
Nine, shall be additional paid-in members; qualifications; powers and
subscription of the Government duties. – The corporate powers of
of the Philippines for Two the Corporation shall be vested in
Hundred Ninety-Two Thousand and exercised by a Board of seven
Six Hundred Seventy-Six shares members consisting of a Chairman,
of stock of said capital stock. Vice-Chairman and five directors who
shall be appointed by the President
“(b) The balance of said subscription of the Philippines.
shall be paid by the conversion
into equity capital of the existing “The President of the Corporation
bonded indebtedness, cost of shall be the ex-officio Vice-Chairman
reparations goods that may of the Board.
be allocated in the future, and
surpluses of the Corporation “The said members of the Board
and in the absence thereof, from shall serve for terms of three years,
an annual appropriation of Two except that any person appointed
Hundred Million Pesos which is to fill a vacancy shall serve only for
hereby appropriated out of any the unexpired term of the member
funds in the National Treasury whom he succeeds.
not otherwise appropriated, be
they collections from any or all “The Board shall meet as often as
taxes accruing to the general may be necessary upon call of the
fund or proceeds from loans, Chairman of the Board or upon call by
the issuance of bonds, treasury a majority of all the Board members.
bills or notes which are hereby
authorized to be incurred or “The members of said Board shall
to be issued by the Secretary receive a per diem of not to exceed
of Finance for the purpose, Five Hundred Pesos for each regular
such annual appropriation to or special meeting of the Board
be programmed and released actually attended by them, and upon
by the Budget Commission in approval of the Secretary of Energy,
accordance with the schedule shall receive such other allowances
of cash requirements to be as the Board may prescribe, any
submitted by the Corporation: provision of law to the contrary
Provided, That this annual notwithstanding.
appropriation of Two
Hundred Million Pesos and “A majority of the members of the
the programming and release Board shall constitute a quorum for
thereof shall remain in force the transaction of business.
until the balance of the unpaid
subscription of the Government “The Board, shall, moreover, have
to the capital stock of the the following specific powers and
Corporation shall have been paid duties:
in full.”
“(a)
To formulate and adopt
SECTION 2. Section 6 of the same Act is policies and measures for the
hereby amended to read as follows. management and operation of
the Corporation;
“(b)
To adopt an annual and SECTION 3. Section 7 of the same Act is
supplemental budget of hereby amended, to read as follows:
receipts and expenditures of
the Corporation according to its “SEC. 7. The President of the
requirements; Corporation, his powers and duties;
and other Corporate Officers and
“(c) To organize, reorganize and employees of the Corporation. – The
determine the Corporation’s President of the Corporation who
organization structure and shall be the Chief Executive Officer of
staffing pattern; abolish and the Corporation, shall be assisted by
create offices and positions; fix such number of Corporate Officers
the number of its officers and and employees as may be deemed
personnel; transfer and re-assign necessary by the Board of Directors
such officers and personnel; fix of the Corporation.
their compensation, allowances
and benefits, the provisions of “The President of the Corporation
Presidential Decree No. 985 to shall have the following powers and
the contrary notwithstanding; duties:
“(d) To fix the compensation of the “(a) To execute and administer the
President of the Corporation policies and measures approved
who shall be appointed by the by the Board, and have the
President of the Philippines; responsibility for the efficient
and to appoint and fix the discharge of management
compensation of other corporate functions;
officers;
“(b) To submit for the consideration
“(e) For cause, to suspend or remove of the Board such policies and
any corporate officer appointed measures which he deems
by the Board; necessary to carry out the
purposes and provisions of this
“(f) To adopt and set down guidelines Act;
for the employment of
personnel on the basis of merit, “(c)
To direct and supervise
technical competence and moral the operation and internal
character; administration of the Corporation
and, for this purpose, may
“(g) To take care that in fixing the delegate some or any of his
rates and fees to be charged by administrative responsibilities
the Corporation considerations and duties to other officers of
of adequacy, reliability and the Corporation;
sustained power service at
the least possible cost to the “(d) Subject to the guidelines and
public and of limited return on policies set up by the Board, to
investments as prescribed in appoint and fix the number and
Section 5 hereof, shall be taken; compensation of subordinate
officials and employees of the
“(h) Any provision of law to the Corporation; and for cause, to
contrary notwithstanding, to remove, suspend or otherwise
write off bad debts.” discipline any subordinate
employee of the Corporation; the proposed debt is to be incurred
and such terms and conditions as
“(e) To prepare an annual report of it shall deem appropriate for the
the Board on the activities of the accomplishment of the said purpose:
Corporation at the close of each Provided, That in the case of bond
fiscal year and upon approval issues, the same shall be subject to
thereof, submit a copy to the the approval of the President of the
President of the Philippines and Philippines upon recommendation of
to such other agencies as may be the Secretary of Finance.
required by law;
“The bonds issued under the
“(f) To represent the Corporation authority of this subsection shall be
in all dealings and transactions exempt from the payment of all taxes
with other offices, agencies by the Republic of the Philippines,
and instrumentalities of the or by any authority, branch, division
Government and with all persons or political subdivision thereof of
and other entities, private or which facts shall be stated upon
public, domestic or foreign; the face of said bonds. Said bonds
shall be receivable as security in any
“(g) To exercise such other powers transaction with the Government in
and duties as may be vested in which such security is required.
him by the Board from time to
time. “The Republic of the Philippines
hereby guarantees the payment by
“The Commission on Audit shall the Corporation of both the principal
appoint a representative who shall and the interest of the bonds issued
be the Auditor of the Corporation. by said Corporation by virtue of this
In carrying out his responsibilities, Act, and shall pay such principal
he shall be assisted by such number and interest in case the Corporation
of personnel as shall be necessary, fails to do so, and there are hereby
whose appointments shall be subject appropriated, out of the general
to the approval of the Board. The funds in the National Treasury not
salaries of the Auditor and his staff otherwise appropriated, the sums
shall be fixed and approved by the necessary to make the payments
Board.” guaranteed by this Act: Provided,
That the sums so paid by the Republic
SECTION 4. Section 8 of the same Act is of the Philippines shall be refunded
hereby amended to read as follows: by the Corporation: Provided,
further, That the Corporation shall
“(a) Domestic Indebtedness. – set aside five per centum of its annual
Whenever the Board deems it net operating revenues before
necessary for the Corporation to incur interests as a reserve or sinking fund
indebtedness by contracting loans to answer for amounts advanced to
with domestic financial institutions it by the National Government for
or to issue bonds to carry out the any loan, credit and indebtedness
purposes for which the Corporation contracted by the former for which
has been organized, it shall, by the latter shall be answerable as
resolution, approved by at least four primary obligor or guarantor under
members of the Board, so declare the provisions of this Act: Provided,
and state the purpose for which furthermore, That the setting aside
of the amounts mentioned herein indebtedness and bonds issued up to
shall automatically cease the the amount herein authorized, which
moment the accumulated sinking shall be over and above the amount
fund or reserve exceeds the amounts which the President of the Philippines
advanced to the Corporation by the is authorized to guarantee under
National Government under this Republic Act Numbered Sixty-One
Act: And, Provided, finally, That the Hundred Forty-Two, as amended, as
Corporation may periodically make well as the performance of all or any
partial payments to the National of the obligations undertaken by the
Government out of the said reserves. Corporation in the territory of the
Republic of the Philippines pursuant
“(b) Foreign Loans. – The to loan agreements entered into
Corporation is hereby authorized with foreign governments or any
to contract loans, credits, in any international financial institutions or
convertible foreign currency, or fund sources.
capital goods, and indebtedness
from time to time from foreign “In the contracting of any loan credit
governments, or any international or indebtedness under this Act, the
financial institution or fund source, President of the Philippines may,
or to issue bonds, in such amount when necessary agree to waive or
and in any foreign currency on such modify the application of any law
terms and conditions as it shall deem granting preferences or imposing
appropriate for the accomplishment restrictions on international
of its purposes and to enter into competitive bidding, including
and execute agreements and other among others, Act Numbered Four
documents specifying such terms Thousand Two Hundred Thirty-Nine,
and conditions. Commonwealth Act Numbered One
Hundred Thirty-Eight, the provisions
“The President of the Philippines, by of Commonwealth Act Numbered
himself, or through his authorized Five Hundred Forty-One, Republic
representative, is hereby authorized Act Numbered Five Thousand One
to negotiate and contract with foreign Hundred Eighty-Three, insofar as
governments or any international such provisions do not pertain to
financial institutions or fund sources, constructions primarily for national
in the name and on behalf of the defense or security purposes:
Corporation, one or several loans, Provided, however, That as far as
for the purpose of assisting in the practicable, utilization of the services
reconstruction, or promoting the of qualified domestic firms in the
development of the economy of the prosecution of projects financed
country. under this Act shall be encouraged:
Provided, further, That in case where
“The President of the Philippines, international competitive bidding
by himself, or through his duly shall be conducted preference of
authorized representative, is hereby at least fifteen per centum shall be
further authorized to guarantee, granted in favor of articles, materials
absolutely and unconditionally as or supplies of the growth, production
primary obligor and not as surety of manufacture of the Philippines:
merely, in the name and on behalf Provided, finally, That the method
of the Republic of the Philippines, and procedure in the comparison of
the payment of the loans, credits, bids shall be the subject of agreement
between the Philippine Government “(c) Until the President of the
and the lending institution. Philippines appoints the President
of the Corporation, the incumbent
“The loans, credits and indebtedness General Manager of the Corporation
contracted under this subsection and the shall, as may be determined by the
payment of the principal, interest and other Board, either act as President of
charges thereon, as well as the importation the Corporation or hold such office
of machinery, equipment, materials, supplies with such duties and responsibilities
and services, by the Corporation, paid as shall be determined by the
from the proceeds of any loan, credit or Board: Provided, That upon the
indebtedness incurred under this Act, shall assumption of office by the President
also be exempt from all direct and indirect of the Corporation appointed by the
taxes, fees, imposts, other charges and President of the Philippines, said
restrictions, including import restrictions incumbent General Manager of
previously and presently imposed, and to be the Corporation shall without any
imposed by the Republic of the Philippines, or diminution in salary, allowances and
any of its agencies and political subdivisions.” benefits, hold such office and perform
such duties and responsibilities as
SECTION 5. A new section shall be inserted to shall be determined by the Board.”
be known as Section 16-A of the same Act, to
read as follows: SECTION 6. Repealing Clause. – All laws,
decrees, executive orders, administrative
“SEC.16-A. Transitory Provisions. orders, rules and regulations inconsistent
herewith are hereby repealed, amended or
“(a) The word ‘President’ in Section modified accordingly.
3 (k) of this Act shall refer to the
President of the Philippines; SECTION 7. This Decree shall take effect
immediately.
“(b) The phrase ‘General Manager
of the Corporation’ in this Act, as Done in the City of Manila, this 25th day
amended, shall mean the President of April, in the year of Our Lord, nineteen
of the Corporation; And further, the hundred and seventy-eight.
phrase ‘Regional Manager’ in this
Act, shall mean Corporate Officer;


AMENDMENT TO SECTION 5 (b) OF REPUBLIC ACT NO. 6395 AS AMENDED BY PRESIDENTIAL
DECREE NOS. 380, 395, 758 AND 1360

WHEREAS, the power expansion program pledged, mortgaged, or otherwise

undertaken by the National Power given a security for the payment of
Corporation (NPC) covering a period of ten any obligation. The sum of Three
(10) years would need effective government Hundred Million Pesos of said capital
support through equity contributions to NPC stock has been subscribed and paid
to sustain said programs; wholly by the Government of the
Philippines in accordance with the
WHEREAS, the present Revised Charter of provisions of Republic Act Numbered
the National Power Corporation limits the Four Thousand Eight Hundred
government equity contributions to annual Ninety-Seven.
appropriation of P 200 Million to pay the
balance of the unpaid subscription of the “The remaining Forty-Nine Billion
government to the capital stock of the Seven Hundred Million Pesos shall
Corporation; be subscribed by the Government of
the Republic of the Philippines and
WHEREAS, to insure adequate funds and shall be paid as follows:
sustain the Corporation’s power development,
there is an imperative need to appropriate “(a) The sum of Twenty-Nine Million
such additional sums as may be necessary to Two Hundred Sixty-Seven
meet the yearly financial requirements of the Thousand Six Hundred Pesos
power program; representing outstanding cost
and interest of reparation goods
NOW, THEREFORE, I, FERDINAND E. MARCOS, procured by the Corporation
President of the Philippines, by virtue of the pursuant to the provisions
powers vested in me by the Constitution, do of Republic Act Numbered
hereby order and decree that – Seventeen Hundred Eighty-
Nine, shall be additional paid-in
SECTION 1. Section 5 of the Charter of the subscription of the Government
National Power Corporation, Republic Act No. of the Philippines for Two
6395, as amended by Presidential Decree Nos. Hundred Ninety-Two Thousand
758 and 1360, is hereby further amended to Six Hundred Seventy-Six shares
read as follows: of stock of said capital stock.
“SEC. 5. Capital Stock of the “(b) The balance of said subscription
Corporation. – The authorized shall be paid by the conversion
capital stock of the Corporation into equity capital of the existing
shall be Fifty Billion Pesos (P bonding indebtedness, cost
50,000,000,000.00) divided into Five of reparation goods that may
Hundred Million (P 500,000,000) be allocated in the future and
shares having a par value of One surpluses of the Corporation
Hundred Pesos each, which shares as well as from such as shall be
are not to be transferred, negotiated, appropriated annually out of any
funds in the National Treasury of cash requirements to be
not otherwise appropriated, be submitted by the corporation
they collections from any or all until the balance of the unpaid
taxes accruing to the general subscription of the Government
funds or proceeds from loans, to the capital stock of the
the issuance of bonds, treasury Corporation shall have been paid
bills or notes which are hereby in full.”
authorized to be insured or
to be issued by the Secretary SECTION 2. This Decree shall take effect
of Finance for the purpose, immediately.
such annual appropriation to
be programmed and released Done in the City of Manila, this 11th day
by the Budget Commission in of June, in the Year of Our Lord, Nineteen
accordance with the schedule Hundred and Seventy-eight.


PROVIDING FOR THE FULFILLMENT BY THE NATIONAL POWER CORPORATION OF ITS OBLIGATIONS
UNDER THE AGREEMENT FOR THE SALE AND PURCHASE OF NATURAL GAS DATED DECEMBER
30, 1997 WITH SHELL PHILIPPINES EXPLORATION B.V./OCCIDENTAL PHILIPPINES, INC. AND THE
COMPLIANCE OF THE NATIONAL GOVERNMENT, THROUGH THE DEPARTMENT OF FINANCE AND
THE DEPARTMENT OF ENERGY WITH ITS PERFORMANCE UNDERTAKING THEREFOR AND OTHER
PURPOSES
WHEREAS, the Government of the Republic WHEREAS, under SC 38, as clarified, a

of the Philippines, represented by the Office production sharing scheme has been
of Energy Affairs (now the Department of provided whereby the Government is entitled
Energy or “DOE”), and Shell Exploration B.V./ to receive an amount equal to sixty percent
Occidental Philippines, Inc., their assignees (60%) of the net proceeds from the sale of
and successors-in-interest (hereinafter Petroleum (including Natural Gas) produced
alternatively called the “Service Contractor”, from Petroleum Operations (all as defined in
the “Sellers” or “Shell/Oxy” for brevity) SC 38) while Shell/Oxy, as Service Contractor
entered into a Service Contract (“SC 38”) is entitled to receive an amount equal to forty
on December 11, 1990 as clarified by a percent (40%) of the net proceeds;
Memorandum of Clarification between the
same parties of the same date, covering WHEREAS, Section 7.3 (b) of SC 38, as
the Camago-Malampaya Reservoir, among clarified, provides that the Office of Energy
others, located offshore Northwest Palawan, Affairs, now the DOE, shall be entitled to
Philippines (hereinafter called the “Natural receive in kind Petroleum, including Natural
Gas Project”); Gas, equal in value to sixty percent (60%) of
net proceeds;
WHEREAS, Shell Exploration B.V. has
assigned on December 11, 1990 its rights and WHEREAS, the Service Contractor has also
obligations under SC 38, as clarified, to Shell been authorized to market to the National
Philippines Exploration B.V.; Power Corporation (“NPC”) on behalf of the
Government, the Government’s share of
Natural Gas produced and saved from the
Contract Area (as defined in SC 38) and to WHEREAS, Section 88 (1) of P.D. No. 1445
market additional volumes to other domestic prohibits the Government from making
buyers; advance payment for supplies and materials
not yet delivered under any contract, except
WHEREAS, based on seismic surveys and with the prior approval of the President of
exploration and appraisal well drilling, Shell/ the Republic of the Philippines;
Oxy have established the presence, in the
Camago-Malampaya Reservoir in the Contract WHEREAS, under Section 44, Chapter 5, Book
Area, of Natural Gas in quantities estimated VI, of the Revised Administrative Code of 1987
to be sufficient to justify the pursuit of gas- (Executive Order No. 292) amounts received
to-power projects having an aggregate power in trust and from the business-type activities
generating capacity of approximately 3,000 of Government may be separately recorded
MW operating at baseload for twenty years; and be disbursed in accordance with such
rules and regulations as may be determined
WHEREAS, NPC’s 1,200 MW Ilijan Power Plant by the Permanent Committee created under
located in the province of Batangas is one of the same Code;
the natural gas-fired plants that will utilize, as
its main fuel, Natural Gas produced from the WHEREAS, under Section 8 of R.A. No.
Contract Area and provide a ready market for 6395 (Revised NPC Charter), as amended,
the Natural Gas Project; the National Government is authorized to
guarantee the loans, credits and indebtedness
WHEREAS, the Service Contractor, as the of NPC;
Sellers, and the NPC, as the Buyer entered
into an Agreement for the Sale and Purchase WHEREAS, the Government has determined
of Natural Gas (hereinafter called the “GSPA”) that it can derive the following economic and
on December 30, 1997, relating to the social benefits from the Natural Gas Project:
sale and purchase of Natural Gas from the
Camago-Malampaya Reservoir for the Ilijan (1) the use of Natural Gas for power
Power Plant and other purposes; generation will effect lower electricity
rates resulting in savings estimated at
WHEREAS, in accordance with the GSPA, the about US $ 2.2 billion;
Start Date for the Sellers to tender for delivery
and for the Buyer to take Natural Gas shall be (2) based on the estimated production level
on January 2, 2002 subject to the Sellers or and Natural Gas pricing formula between
the Buyer being ready, respectively, to tender the Sellers and the Buyers of such Natural
for delivery or receive Natural Gas; Gas, the estimated Government revenues
for the 20-year contract period will be
WHEREAS, in the event of a low growth around US $ 8.1 billion; this includes
scenario, it is forecasted that there may be estimated revenues to be generated
an excess in the capacity to supply electricity from the available oil and condensate
which may affect the capability of NPC to take reserves of the Camago-Malampaya
the full Take-or-Pay Quantity (the “TOPQ”) Reservoir; the province of Palawan is
under clause 9 of the GSPA in the early expected to receive about US $ 2.1 billion
Contract Years of the GSPA; from the total Government share of US $
8.1 billion;
WHEREAS, under clause 9 of the GSPA,
Natural Gas not taken but paid for by NPC (3) the Natural Gas Project represents
(hereinafter called “Annual Deficiencies”) will the single largest and most significant
be made available to NPC without additional investment in the history of Philippine
charge subject to the GSPA; business, with a total private investment
portfolio of about US $ 4.8 billion: it with the conformity of the Department of
includes investment in both upstream Finance (the “DOF”), to provide assistance
and downstream operations which in to NPC by utilizing the Net Government
turn will create new job opportunities Share to satisfy the TOPQ provisions of the
requiring engineering, technical, GSPA in respect of the part of such TOPQ
professional and skilled manpower; that is in excess of NPC’s Planned Generation
Consumption as specified in Table 1 hereof, in
(4) the utilization of Natural Gas will displace consideration of the DOE’s being subrogated
imported fuels, in the process releasing to NPC’s right to recover the corresponding
valuable foreign exchange for other Annual Deficiencies to be supplied by the
productive uses thereby improving the Sellers under Clause 9 of the GSPA;
Philippines’ trade balance; the estimated
foreign exchange savings that will be WHEREAS, the Net Government Share during
realized will be around US $ 4.5 billion; the early Contract Years of the GSPA may
not be sufficient to pay for the Natural Gas
(5) in addition to triggering an inflow of payable but not taken by NPC under the TOPQ
the latest oil and gas technology and provisions of the GSPA;
skills in the country, the introduction of
Natural Gas as an environment-friendly WHEREAS, the Sellers have offered to NPC
fuel for power generation will have a a Deferred Payment Facility (the “Facility”)
positive major environment impact; to finance, under terms to be agreed upon,
natural gas is a clean fuel for power payment for the Natural Gas not taken but
generation compared to coal and oil and payable by NPC under the TOPQ provisions
the environmental benefits have been of the GSPA, after the application of the
quantified to amount to an estimated Net Government Share, to the extent of
savings of about US $ 1.1 billion; the difference between the TOPQ and the
greater of: (i) NPC’s Planned Generation
(6) the Natural Gas Project offers the Consumption; and (ii) the quantities of
opportunity of increasing the country’s Natural Gas actually taken by NPC, for each
energy self-reliance; with the substantial relevant Contract Year under the GSPA;
realization of this indigenous resource
in the energy mix, the country can look WHEREAS, in view of the socio-economic and
forward to gradually veering away from environmental advantages to the country
heavily using imported oil and coal in the of the Natural Gas Project, full Government
power generation sector. support for NPC’s fulfillment of its obligations
under the GSPA is imperative;
WHEREAS, the Government’s share in
Petroleum (including Natural Gas) produced NOW, THEREFORE, I, FIDEL V. RAMOS,
under SC 38, as clarified, will be reduced (i) President of the Philippines, by virtue of the
by the share of concerned local government powers vested in me by law, do hereby order:
units pursuant to the Local Government Code
and (ii) by amounts of income taxes due from SECTION 1. NPC is hereby authorized to make
and paid on behalf of the Service Contractor payments under the Take-or-Pay Quantity
(the resulting amounts hereinafter called the provisions in clause 9 of the GSPA for Natural
“Net Government Share”); Gas, whether delivered and taken or tendered
for delivery and not taken. NPC shall adopt all
WHEREAS, to support the development necessary measures to maximize utilization of
of the Natural Gas Project, the National the TOPQ within the earliest possible period.
Government through the DOE, has agreed,

SECTION 2. The National Government, Generation Consumption but payable by NPC
through the DOF, shall guarantee, under the under the TOPQ provisions of the GSPA.
terms of a “Performance Undertaking” to
the Sellers, the payment of NPC’s financial SECTION 7. In the event that (i) the Net
obligations under the GSPA (or under the Government Share, (ii) the Facility and
Facility to the extent such obligations are (iii) the funds contained in the Account
financed under the Facility) in consideration are insufficient or not available for the
of fees to be paid by the Sellers to the DOF purposes set forth in Sections 3, 4, and 6
under such Performance Undertaking. hereof, or other obligations arise under the
Performance Undertaking, the balance of
SECTION 3. The National Government, through the amounts due to the Sellers under the
the DOE, shall utilize the Net Government Performance Undertaking shall be paid from
Share to satisfy the TOPQ provisions of the other available government sources or funds.
GSPA in respect of the part of such TOPQ that
is in the excess of NPC’s Planned Generation SECTION 8. As soon as NPC is able to utilize
Consumption as specified in Table 1 hereof. Annual Deficiencies, NPC shall pay the DOE
the value of the Annual Deficiencies so
utilized by NPC to the extent such Annual
SECTION 4. In the event that the Net Deficiencies have been paid by the DOE from
Government Share from the DOE in a the Net Government Share.
given Contract Year as defined in the GSPA
is insufficient to pay for the Natural Gas SECTION 9. The DOF, DOE and NPC are hereby
not taken but payable under the TOPQ authorized to enter into any agreements
provisions of the GSPA that is in excess of necessary to implement the provisions of this
NPC’s Planned Generation Consumption, Order.
NPC is hereby authorized to avail itself of
the Deferred Payment Facility. In addition to SECTION 10. The DOF and DOE shall have
the purposes set out in Section 3 hereof, the joint primary jurisdiction over any issue
Net Government Share for the succeeding or controversy which may arise from the
Contract Years shall be used to pay the Sellers interpretation of this Order and of other inter-
for any amounts outstanding under the agency agreements which may be executed
Facility. pursuant hereto, without prejudice to the
dispute resolution provisions contained in
SECTION 5. Pursuant to Section 44, Chapter 5, the GSPA, the Facility and the Performance
Book VI, of the Revised Administrative Code of Undertaking.
1987 (Executive Order No. 292), a Special Net
Government Share Account (the “Account”) SECTION 11. Should any portion or provision
is hereby created with the Bureau of the of this Order be declared unconstitutional,
Treasury to be sourced from Net Government illegal or contrary to law, the remaining
Share in the proceeds of all petroleum, natural portions or provisions unaffected by such a
gas and geothermal service contracts, and ruling shall continue to remain in force and
coal operating contracts of the Government, in effect.
other than SC 38, under P.D. No. 87, as
amended, and other pertinent legislation. SECTION 12. This Order shall take effect
immediately upon issuance.
SECTION 6. The Account shall be used to pay
the Sellers any amounts outstanding under Done in the City of Manila, this 17th day of
the Facility or due under the Performance February, in the year of Our Lord, nineteen-
Undertaking in respect of Natural Gas not hundred and ninety-eight.
taken that is in excess of NPC’s Planned
522 INDUSTRY
ELECTRIC POWER VOLUME 4
PROVIDING FOR THE SEGREGATION AND UNBUNDLING OF ELECTRICAL POWER TARIFF

COMPONENTS OF THE NATIONAL POWER CORPORATION AND THE FRANCHISED ELECTRIC UTILITIES

WHEREAS, Section 28 of Article II of the ERB’s approval;

Constitution provides that “the State adopts
and implements a policy of full public WHEREAS, in the interest of transparency
disclosure of all its transactions involving and accountability and consistent with
public interest”; Executive Order No. 215, series of 1987, and
its implementing rules and regulations and
WHEREAS, Section 5 of Article II of the to rationalize the economic and efficient
Constitution provides that “the protection generation, transmission and distribution
of x x x property, and the promotion of of electricity, there is a need to identify,
the general welfare are essential for the segregate and “unbundle” the different
enjoyment by all the people of the blessings components of the electricity tariff that
of democracy”; NPC and the franchised electric utilities are
charging their respective customers;
WHEREAS, wholesome and constructive
competition promotes satisfaction and WHEREAS, in the decision in ERB Case
efficiency in the management and operation No. 96-118, dated June 11, 1997, the ERB
of the public service; approved an open access transmission tariff
and tariff for ancillary services to allow non-
WHEREAS, the generation, transmission, and discriminatory use of NPC’s transmission grid
distribution of electric power are separate by private sector generating facilities and
and distinct fields of activity with different electric utilities;
cost considerations;
WHEREAS, pursuant to Republic Act No.
WHEREAS, the National Power Corporation 7638, series of 1992, the Department of
(NPC) and franchised electric utilities have Energy (DOE) is mandated, among others, to
been traditionally providing electric power provide for an environment conducive to free
service to customers whereby the generation, and active private sector participation and
transmission, and distribution of electric investment in all energy activities; and
power are integrated or combined and
charged as a single tariff; WHEREAS, ERB is mandated to determine, fix
and prescribe the electric power rates of NPC,
WHEREAS, Executive Order No. 215, private electric utilities, and rural electric
series of 1987, and its implementing rules cooperatives.
and regulations allowing private sector
participation in power generation prescribes NOW, THEREFORE, I, FIDEL V. RAMOS,
the transmission or wheeling of power to President of the Republic of the Philippines,
electric utilities and mandates the NPC and by virtue of the powers vested in me by law,
franchised electric utilities with transmission consistent with the foregoing Constitutional
and/or distribution facilities of 69 kilovolts policies and legal mandates, do hereby order
(KV) or above to file with the Energy Regulatory the ERB, to formulate and adopt the necessary
Board (ERB) standard interconnection policies guidelines to identify the different types of
and procedures, and wheeling tariffs for the services provided and the corresponding

tariffs charged to customers, hereinafter ancillary service charges and service cost for
referred to as unbundled tariffs, by NPC and supply of electricity.
franchised electric utilities, within a period
of sixty (60) days from the effectivity of this This Executive Order shall take effect
order. immediately.

For this purpose, unbundled tariffs shall Done in the City of Manila, this 17th day
include, as applicable but not limited to, of April in the year of our Lord, nineteen
generation charges, transmission, sub- hundred and ninety-eight.
transmission and distribution charges,
AUTHORIZING AND APPROVING THE DIRECT ASSUMPTION BY THE NATIONAL GOVERNMENT

OF A PORTION OF THE FINANCIAL OBLIGATIONS OF THE NATIONAL POWER CORPORATION
IN ACCORDANCE WITH SECTION 32 OF REPUBLIC ACT NO. 9136, OTHERWISE KNOWN AS THE
“ELECTRIC POWER INDUSTRY REFORM ACT OF 2001”
WHEREAS, pursuant to Section 32 of Republic Government of Two Hundred Billion Pesos

Act No. 9136 approved on 8 June 2001 (P 200,000,000,000.00) of NPC’s financial
otherwise known as the “Electric Power obligations as contemplated under Section 32
Industry Reform Act” (EPIRA), the National of the EPIRA;
Government was mandated to assume
directly a portion of the financial obligations WHEREAS, the Development Budget
of the National Power Corporation (NPC) in Coordination Committee under the National
an amount not to exceed Two Hundred Billion Economic and Development Authority (NEDA)
Pesos (P 200,000,000,000.00); Board, which is tasked, among others, with
the determination of the fiscal program of
WHEREAS, Section 49 of the EPIRA likewise the National Government, has recommended
mandated that all existing generation assets, that the National Government, pursuant to
real estate and all other disposable assets, as the EPIRA, directly assume a portion of the
well as the outstanding liabilities of NPC arising financial obligations of NPC in an amount
from loans, issuances of bonds, securities and not to exceed Two Hundred Billion Pesos
other instruments of indebtedness, shall be (P 200,000,000,000.00) beginning on 31
transferred to and assumed by the Power December 2004;
Sector Assets and Liabilities Management
Corporation (PSALM Corp.); WHEREAS, pursuant to Executive Order No.
292 dated 25 July 1987, otherwise known
WHEREAS, the consent of NPC’s creditors as the “Administrative Code of 1987”, the
under various loan and financial agreements Department of Finance shall be primarily
is required for the formal transfer of NPC’s responsible for the sound and efficient
assets and liabilities to PSALM Corp; management of the financial resources of
the National Government, its subdivisions,
WHEREAS, obtaining the consent of agencies and instrumentalities and for
NPC’s creditors would be facilitated by the review, approval and management of
the direct assumption by the National all public sector debt, whether foreign or

domestic, with the end in view of ensuring financial obligations.
that all borrowed funds are effectively utilized
and all such obligations are promptly serviced For this purpose, the DOF may call upon the
by the government; DBM, the Department of Energy, the NEDA,
and any other agency of the Government
NOW, THEREFORE, I, GLORIA MACAPAGAL- for such assistance as may be necessary in
ARROYO, President of the Republic of the the performance of its functions as provided
Philippines, by virtue of the powers vested in herein. All heads of departments, agencies,
me by law, do hereby order: bureaus and offices, including government-
owned or -controlled corporations, are
SECTION 1. Assumption of NPC’s Financial hereby enjoined to render full assistance and
obligations by the National Government. – cooperation to the Secretary of Finance and
Pursuant to Section 32 of the EPIRA, the provide such information and data as may
National Government shall directly assume be required to carry out the implement the
a portion of the financial obligations of provisions of this Order.
the NPC in an amount not to exceed Two
Hundred Billion Pesos (P 200,000,000,000.00) SECTION 3. Signing Authority. – The Secretary
beginning on 31 December 2004, in of Finance is hereby authorized to enter into,
accordance with a schedule to be approved conclude and sign, for and on behalf of the
by the Development Budget Coordination National Government, such agreements,
Committee. deeds, and any and all other documents
necessary to implement, and to render
SECTION 2. Lead Agency. – The Department valid and enforceable, the assumption by
of Finance (DOF), in consultation with the the National Government of NPC’s financial
Department of Budget and Management obligations in accordance with this Order.
(DBM) and the Commission on Audit (COA),
shall address and resolve all issues relating to In relation to any financial obligation of
the assumption by the National Government NPC directly assumed by the National
of NPC’s financial obligations as provided in Government, the DOF shall have full
Section 1 hereof, including, but not limited to: authority and discretion to determine in each
instance the specific modality for giving legal
(a) identification of specific debts to be effect to the assumption of liability by the
assumed and determining the levels of National Government, so long as the ultimate
annual debt absorption; financial responsibility for the payment of
such financial obligation of NPC rests with the
(b) the arrangements between PSALM Corp., National Government.
NPC, and the National Government;
SECTION 4. This Executive Order shall take
(c) the proper treatment and recording of effect immediately after its publication in a
the transactions in the books of account newspaper of general circulation.
of the National Government and NPC;
and Done in the City of Manila, this 12th day
October, in the year of Our Lord, Two
(d) the implementation of the assumption Thousand and Four.
by the National Government of NPC’s

Chapter 5
National Electrification Administration

AN ACT TO CREATE THE ELECTRIFICATION ADMINISTRATION, AND OTHER PURPOSES
SECTION 1. This Act shall be known as the investigations, and reports concerning the
“Electrification Administration Act.” condition and progress of electrification
of any region of the country, principally
SECTION 2. It is declared to be the policy the furnishing of electric power ultimate
of the Republic of the Philippines to furnish consumers; (d) to encourage and aid local
cheap and dependable electric power and governments and cooperative electric
facilities in order to promote and accelerate consumers associations in undertaking the
the agricultural and industrial development public service of electric power, heat and light
of the country. systems, and (e) to publish and disseminate
information with respect thereto.
SECTION 3. For the purpose of carrying out
the policy enunciated in this Act, especially SECTION 5. The Government Service
in the rural areas, there is hereby created Insurance System, the Social Security System
and established an agency to be known and the Development Bank of the Philippines
as the “Electrification Administration,” all are hereby authorized and directed to make
the powers of which shall be exercised by loans not exceeding in aggregate the amount
an Administrator, who shall be appointed of Fifty Million Pesos with interest at a rate
by the President, with the consent of the not exceeding five per cent per annum to local
Commission on Appointments, for a term of government, electric consumers cooperative
ten years and who shall receive an annual associations duly organized under the laws
compensation of Twelve Thousand Pesos, of the Philippines, and to Filipino electric
which may be increased to not more than franchise holders now operating, upon
Twenty-Five Thousand Pesos as the President recommendation of the Administrator and
may deem proper. with the approval of the National Economic
Council, for the purpose of constructing,
SECTION 4. The Administrator is authorized operating, maintaining and administering
(a) to make loans for the electrification and electric power, heat and light system for
the furnishing of electric energy, particularly service to the public and/or for the purpose
in rural areas; (b) to plan, coordinate program of purchasing any existing electric public
and supervise comprehensive, efficient service.
and dependable producing, transmitting
and distributing systems for electric power; SECTION 6. As a revolving fund of the
(c) to make, or cause to be made, studies Electrification Administration, there is hereby

appropriated the sum of Five Million Pesos service shall be fixed so that its profit shall
for the fiscal year nineteen hundred sixty- not exceed six per cent per annum of the rate
nineteen hundred sixty-one, subject to base, notwithstanding any provision of law
availability of funds, and the same amount providing higher rate of profit.
each year for the next four fiscal years. Any
sum as assets which NEC-ICA may assign to SECTION 8. The Administrator is authorized
the Electrification Administration shall form and empowered to make loans for the purpose
part of this revolving fund, except when it is of financing the wiring of the premises of
expressly set aside for research or operating persons in rural areas and the acquisition and
expenses. The President of the Philippines installation of electrical plumbing appliances
is empowered to allocate and transfer to and equipment. Such loans may be made
the Electrification Administration any sums to any Filipino citizen or to any borrower
or assets received from or out of Japanese of funds under Section seven hereof, or
reparations and loans obtained under the to any person, association or corporation
Japanese Reparations Treaty which shall supplying or installing said wiring, appliances
also form part of the revolving fund, except or equipment. Such loans shall be for such
when it is expressly set aside for research or terms, subject to such conditions, and so
operating expenses. secured as reasonably to assure repayment
thereof, and shall be at a rate of interest not
SECTION 7. Out of the revolving fund, the to exceed five per centum per annum.
Administration is authorized and empowered
to make loans to local governments, electric SECTION 9. The Administrator is authorized
consumers cooperative associations duly and empowered to extend the time of
organized under the laws of the Philippines, payment of interest or principal of any loan
and to Filipino electric franchise holders now made by him or pursuant to this Act.
operating, for the purpose of financing the
construction and operation of generating SECTION 10. The Administrator is authorized
plants, electric transmission and distribution and empowered to (a) bid for and purchase
lines or systems for the furnishing of electric at any foreclosure or other sale, or otherwise
energy, particularly in rural areas. Such loans to acquired property pledged or mortgaged
shall be on such terms and conditions relating to secure any loan made pursuant to this Act;
to the expenditure of the moneys loaned and (b) pay the purchase price and any costs and
the security therefor as the Administrator shall expenses incurred in connection therewith;
determine, and may be payable in whole or in (c) accept title to any property so purchased
part out of the borrower’s income: Provided, or acquired in the name of the Republic of the
That all such loans shall be self-liquidating Philippines: (d) operate or lease such property
within a period of not less than twenty-five for such period as may be deemed necessary
years, and shall bear interest at a rate not to or advisable to protect the investment
exceed three per centum per annum, except therein; and (e) sell such property so
loans from funds taken from Japanese loans purchased or acquired upon such terms and
under the Japanese Reparations Treaty, in for such consideration as the Administrator
which case the interest shall not exceed the shall determine to be reasonable.
interest on Japanese loans: Provided, further,
That loans shall not be made unless the No borrower of funds shall, without the
Administrator finds and certifies, that in his approval of the Administrator, sell or dispose
judgment the security therefor is reasonably of the property, rights or franchises acquired
adequate and such loans will be repaid within under the provisions of this Act, until any
the time agreed: Provided, further, That the loan obtained from the Electrification
contract of loan shall contain a stipulation Administration, including all interest and
that the rates of any borrowing electric public charges, shall have been repaid.
SECTION 11. To enable the Electrification loans from the Electrification Administration
Administration to implement more effectively to others, or in any manner be an obligor
the provisions of this Act, the Administrator for money borrowed from the Electrification
shall have a technical staff and such other Administration. Any such officer or employee
staffs or personnel as he may deem proper. who violates the provisions of this section
The Administrator shall appoint, fix the shall be immediately removed by competent
compensation and determine the duties authority and said officer or employee shall
of such staff, officials and employees as the be punished by a fine of not less than One
exigencies of the service may require. Thousand Pesos nor more than Five Thousand
Pesos, or imprisonment for not less than one
SECTION 12. The Administrator may call upon year nor more than five years, or both.
any department or agency of the Government
for assistance or cooperation on any matter SECTION 16. No loan shall be granted by
connected with the functions and powers of the Electrification Administration to any
the Electrification Administration. person related to the Administrator within
the third degree of consanguinity or affinity,
The Administrator shall execute all or to any corporation, partnership, or
electrification projects that may be authorized company wherein the Administrator is a
in any Public Works Acts; and for this purpose, shareholder. Violation by the Administrator
he may call for assistance and cooperation of the provisions of this section is a sufficient
from the National Power Corporation and cause for his removal by the President of
the Mechanical and Electrical Division of the the Philippines; and the Administrator shall,
Bureau of Public Works. furthermore, be punished as provided in the
next preceding section.
SECTION 13. The Administration shall present
annually to the Congress not later than the SECTION 17. No fee, commission, gift,
last day of January in each year the full report or charge of any kind shall be exacted,
of its activities under this Act. demanded, or paid for obtaining loans
from the Electrification Administration,
SECTION 14. No member, officer, attorney, and any officer, employee or agent of the
agent, or employee of the Electrification Administration exacting, demanding or
Administration shall in any manner, directly receiving any fee, commission, gift or charge
or indirectly, participate in the determination of any kind for service in obtaining a loan,
of any question affecting any corporation or shall be punished by a fine of not less than
association in which he is directly or indirectly One Thousand nor more than Three Thousand
interested. Any person violating the provisions Pesos, or imprisonment for not less than one
of this section shall be removed from office year nor more than three years, or both.
and shall upon conviction be punished by a
fine not to exceed ten thousand pesos, or SECTION 18. Any person who, for the purpose
imprisonment not to exceed five years, or of obtaining, renewing, or increasing a loan
both. or the extension of the period thereof, on his
own or another’s behalf, shall give any false
SECTION 15. No officer or employee of information or cause through his intrigue or
the Electrification Administration nor any machination the existence and production
government official who may exercise of any false information with regard to the
executive or supervisory authority over identity, situation, productivity, or value of
the Electrification Administration, either security, or with regard to a point which
directly or indirectly, for himself or as the affect the granting or denial of the loan,
representative or agent of others, shall whether the latter has been consummated
become a guarantor, indorser, or surety for or not, and every officer or employee of the
Electrification Administration who, through the violation thereof, shall be punished by a
connivance or negligence, shall allow by fine not to exceed Ten Thousand Pesos, or
action or omission such false information to imprisonment for not more than five years.
pass unnoticed, thereby causing damage to
the Electrification Administration or exposing SECTION 20. If any provision of this Act,
the latter to the danger of suffering such or the application of such provision to any
damage, shall be punished by a fine of not person or circumstance is declared invalid,
less than the amount of the loan obtained or the remainder of the Act or the application
applied for, nor more than three times such of such provision to other persons or
amount, or imprisonment for not less than circumstances shall not be affected by such
three months nor more than three years, or declaration.
both.
SECTION 21. All Acts or parts of Acts
SECTION 19. Any officer or employee of the inconsistent herewith are repealed or
Electrification Administration who violates modified accordingly.
or permits any agent or any other officer or
employee of the Administration or any other SECTION 22. This Act shall take effect upon
person to violate any of the provisions of this its approval.
Act not specifically punished in the preceding
sections, and any person violating any Enacted without Executive approval, June 19,
provision of this Act or aiding and abetting 1960.

AN ACT DECLARING A NATIONAL POLICY OBJECTIVE FOR THE TOTAL ELECTRIFICATION OF THE
PHILIPPINES ON AN AREA COVERAGE SERVICE BASIS, PROVIDING FOR THE ORGANIZATION OF
THE NATIONAL ELECTRIFICATION ADMINISTRATION, THE ORGANIZATION, PROMOTION AND
DEVELOPMENT OF ELECTRIC COOPERATIVES TO ATTAIN THE OBJECTIVE, PRESCRIBING TERMS AND
CONDITIONS FOR THEIR OPERATION, THE REPEAL OF R.A. NO. 2717, AND FOR OTHER PURPOSES
CHAPTER I shall promote, encourage and assist all public

POLICY AND DEFINITIONS service entities engaged in supplying electric
service, particularly electric cooperatives,
SECTION 1. Title. – This Act shall be which are willing diligently to pursue this
referred to as the “National Electrification objective.
Administration Act.”
Because of their non-profit nature,
SEC. 2. Declaration of National Policy. – The cooperative character and the heavy financial
total electrification of the Philippines on an burdens that they must sustain to become
area coverage basis being vital to the welfare effectively established and operationally
of its people and the sound development of viable, electric cooperatives particularly
the Nation, it is hereby declared to be the shall be given every tenable support and
policy of the State to pursue and foster, in an assistance by the National Government, its
orderly and vigorous manner, the attainment instrumentalities and agencies to the fullest
of this objective. For this purpose, the State extent of which they are capable; and, being

by their nature substantially self-regulating (f) “Dependable and adequate service”
and the Congress having, by the enactment shall mean service that, consistent with
of this Act, substantially covered all phases of normal standards and levels of service
their organization and operation requiring or based upon good utility management
justifying regulation, and in order to further and operating practices, is sufficient
encourage and promote their development, in quantity, having regard for the
they should be subject to minimal regulation demands for service currently existing
by other administrative agencies. and reasonably anticipated within the
foreseeable future, and that is accessible
SEC. 3. Definitions. – As used in this Act, on a constant and continuous basis
the following words or terms shall have except for outages occasioned by the
the following meanings, unless a different need for normal repair, maintenance,
meaning clearly appears from the context: construction or renovation work or by
acts beyond the reasonable ability of
(a) “NEA” shall mean the National the public service entity to prevent or
Electrification Administration, “Board of control.
Administrators” shall mean the Board of
Administrators, and “Administrator” shall (g) “Area” shall mean the geographic area
mean the Administrator, provided for in franchised to a public service entity or
this Act. any lesser geographic area for service
to which the public service entity has
(b) “Cooperative” shall mean a corporation borrowed or may borrow funds for
organized under this Act or a cooperative the acquisition or construction and
supplying or empowered to supply service operation, maintenance or renovation of
which has heretofore been organized service facilities.
under the Philippine Non-Agricultural Co-
operative Act, whether converted under (h) “Area coverage” shall mean dependable
this Act or not. and adequate service that, on the basis
of reasonable and standard extension
(c) “Public service entities” shall mean (1) a and service policies, rates, charges and
cooperative and (2) any local government other terms and conditions, will be or
or (3) other privately-owned public is being made available to all persons
service entities in operation which supply within the affected area as above defined
and are empowered to supply service who request such service and are able
and are subject to regulation by the and willing to abide by and comply
Public Service Commission. with all such reasonable and standard
terms and conditions, regardless of the
(d) “Person” shall mean any natural relative location of such persons within
person, firm, association, cooperative, the affected area or of their proximity
corporation, business trust, partnership, to existing or proposed service facilities:
the National Government or any political Provided, That the financial feasibility
subdivision, agency or instrumentality of the public service entity’s entire
thereof. operation is not thereby impaired.

(e) “Service” shall mean electric service, (i) “Interest rate per centum per annum”
either at wholesale or retail, including shall mean an interest rate that is accrued
the furnishing of any auxiliary or related solely upon the unpaid balance of any
service. loan principal which has actually been
advanced to a borrower and upon any

interest payment which has become due into patron-furnished capital subject to
or been deferred and has not been paid later redemption and retirement by the
by the borrower, computed on an annual cooperative.
basis.
(n) “Board” shall mean the board of directors
(j) “Loan” shall mean a loan the total of a cooperative.
principal amount of which, as and when
required for application to the purposes CHAPTER II
thereof, is, at the time of the making THE NATIONAL ELECTRIFICATION
thereof, assured from funds that are or ADMINISTRATION
will become available therefore.
SEC. 4. National Electrification Administration.
(k) “GSIS”, “SSS”, “DBP”, “NEC”, “NEC-FS” Board of Administrators. – For the purpose of
and “NPC” shall mean, respectively, administering the provisions of this Act there
Government Service Insurance System, is hereby established an agency to be known
Social Security System, Development as the National Electrification Administration,
Bank of the Philippines, National the powers of which shall be vested in and
Economic Council, National Economic exercised by a Board of Administrators
Council-Foreign Source and National composed of a Chairman and four members,
Power Corporation. one of whom shall be the Administrator, as ex-
officio member. The Chairman and the three
(l) “Average interest rate” shall mean other members shall be appointed by the
that average which is determined by President of the Philippines with the consent
dividing (a) the sum of the yearly interest of the Commission on Appointments to serve
payment applying to all outstanding for a term of six years: Provided, That the
borrowed indebtedness and of the terms of the first appointees shall be six years
yearly interest payment that will apply to for the Chairman and one member and three
the new borrowed indebtedness being years for two members, respectively, and that
proposed (but excluding interest that will the term of the ex-officio member shall be co-
or may be paid on deferred or overdue terminus with his term as the Administrator.
interest payments) by (b) the sum of all All vacancies, except through expiration of
outstanding borrowed indebtedness and the term, shall be filed for the unexpired term
the new borrowed indebtedness being only. The Chairman and every member of the
proposed. Board of Administrators shall serve without
compensation and any form of allowances
(m) “Non-profit” shall mean that a but, unless he is a public official or employee,
cooperative shall not engage in business shall be entitled to a per diem of not more
for the purpose of making a profit for than fifty pesos for each meeting actually
itself or its patrons, but it shall not mean attended by him: Provided, That the total of
that a cooperative may not account such per diems shall not exceed five hundred
on a patronage basis to its patrons for pesos per month per member.
any receipts in excess of its expenses in
relation to its operations in serving such The Board of Administrators shall meet
patrons or in relation to investments of regularly at least twice a month and as often
any of its surplus funds pending their as the exigencies of the NEA’s affairs demand.
use by the cooperative or their refund The presence of at least three members shall
to patrons; nor shall it mean that such constitute a quorum which shall be necessary
excess receipts may not be refunded for the transaction of any business. The
to its patrons, or may not be converted affirmative vote of a majority of the members

present shall be necessary for the approval limiting the generality of the foregoing and in
of any resolution, decision or order of the addition to other authorizations, powers and
Board. In the absence of the Chairman at a directives established by this Act, specifically
Board meeting duly called, the Administrator, authorized, empowered and directed:
as ex-officio member shall preside over the
meeting. (a) To make loans to public service entities,
with preference to cooperatives for the
The Board of Administrators is hereby construction or acquisition of generating,
authorized to carry out the provisions and transmission and distribution facilities
purposes of this Act, and, subject to the and all related properties, equipment,
approval of the President, to promulgate rules machinery, fixtures, and materials for
and regulations to govern its proceedings the purpose of supplying area coverage
and the exercise of the NEA’s authority, to service and thereafter to make loans
organize, reorganize and determine the NEA’s for the restoration, improvement or
personnel and its staffing pattern, and to enlargement of such facilities: Provided,
define their powers and duties. That the public service entity applying for
a loan, if neither a cooperative nor a local
The Board of Administrators shall have under government, must be in operation at the
its control and supervision an Administrator time of application;
who shall serve as the Chief Executive Officer
of the NEA responsible for carrying out its (b) To assist public service entities, with
purposes and programs under the direction preference to cooperatives, in planning,
of the Board of Administrators, exercise developing, coordinating, establishing,
such power and authority as the Board may operating, maintaining, repairing and
delegate to him, and perform such acts as he is renovating facilities and systems for
under this Act authorized and directed and as supplying area coverage service, and for
the Board may authorize and/or direct him so such purpose to furnish, to the extent
to do. The Administrator shall be a person of possible from the NEA technical staff and
known integrity, competence and experience otherwise but without charge therefor,
in technical and executive fields related to the technical and professional assistance
purposes of this Act. He shall be appointed and guidance, information, data and the
by the President of the Philippines with the results of any investigations, studies or
consent of the Commission on Appointments reports conducted or made by the NEA;
and shall receive a salary to be fixed by the
Board of Administrators with the approval (c) When sufficient funds therefor are
of the President not exceeding twenty four not available from the revolving fund
thousand pesos per annum. He shall serve for hereinafter established, to serve,
a term of six years and shall not be removable without charge for such service, as the
except for cause. agent of public serve entities which are
cooperatives or local governments in
SEC. 5. Authorities, Powers and Directives. securing loans directly to such entities
– The Board of Administrators is hereby from any other source for the same
authorized, empowered and directed to purposes for which NEA loans are
promote, encourage and assist public service authorized in subparagraph (a) of this
entities, particularly cooperatives, to the section; and to approve or disapprove any
end of achieving the objective of making other loans to cooperatives as provided
service available throughout the nation on for in section 11 of this Act;
an area coverage basis as rapidly as possible;
and for such purpose it is hereby, without (d) To receive from cooperatives all
articles of incorporation, amendment,
consolidation, merger, conversion SEC. 6. Loans from GSIS, SSS and DBP. – The
and dissolution, and all certificates of GSIS, SSS and DBP are hereby authorized,
changes in the location of principal empowered and directed to make loans
offices and of elections to dissolve, directly to public service entities for the same
and, upon determining that such are in purposes for which NEA loans are authorized
conformity with this Act, to certify the in subparagraph (a) of section five. Any
same, to file them in the records of the other provision of law to the contrary
NEA, and to maintain a registry of such notwithstanding, such a loan shall be made
filing: Provided, That the duties specified by any of the foregoing three whenever:
in this subsection shall be performed by
the Administrator under the supervision (a) Application for such loan has been
of the Board of Administrators; made to it on behalf of such entity by
the Administrator, accompanied by his
(e) To so cooperate and coordinate the determination and certification that
NEA’s administration with, to exchange (1) sufficient funds for such a loan are
such information, studies and reports not available out of the revolving fund
with, and to seek such cooperation and hereinafter established; (2) such loan
coordination from, other departments, is necessary to enable the borrower to
agencies and instrumentalities of the accomplish the loan purposes established
National Government, including the in subparagraph (a) of section five; (3)
National Power Corporation, as will most in his judgment the loan will be repaid
effectively conduce to the achievement with interest on schedule and will not
of the purposes of this Act; and result in any diminution of the security
of, or of the ability of the borrower to
(f) At least annually, not later than January repay, any outstanding indebtedness of
31st, to report to the President and the the borrower to the NEA or any other
Congress on the status of electrification lending source below than level of such
of the Philippines, including a security and ability were such additional
comprehensive reporting of loans made, borrowing not being undertaken; (4) no
loan funds advanced, loans secured from lender other than the NEA or if such be
other sources and the advances thereof, the case the lender being applied to,
the names and locations of the borrowers, then holds or has the right to secure
the number of services contemplated by a first lien on the properties of the
such loans, the number actually receiving borrower to be financed by such loan;
service as a result of such loans, the and (5) his willingness in relation to the
number of electrified and the remaining properties to be financed by such loan,
number of unelectrified premises (A) to release any after-acquired property
throughout the Nation, the amounts clause in any lien the NEA already has on
of usage by consumers, loan and other the borrower’s properties to, or (B) to
activities programmed for the ensuing share any such lien on a co-equal basis
year, and all such other information and in proportion to their respective loans
data as will accurately reveal the progress with, or (C) to subordinate any such lien
being made toward achievement of the in favor of, the lender; and
purposes of this Act; and to publish such
report for dissemination to and use by (b) The NEC determines and certifies to the
other interested departments, agencies lender: (1) that the funds of such lender,
and instrumentalities of the National having regard for the amount, term,
Government and by borrowers under this interest charge, repayment schedule and
Act. security of such loan, are sufficient and

available for such purpose; (2) that such such lien the NEA then already has upon
loan will not impair or unduly deter the such borrower’s properties, whichever
achievement of the primary purposes for the NEC shall require.
which the lender has accumulated such
funds; (3) the loan term, which shall not The beginning schedule of repayment of the
exceed thirty-five years; (4) the repayment principal of such loans, of the interest charges
schedule, which shall not cause payments thereon, or both, may be deferred for a period
of principal or interest to come due more not to exceed seven years from the advance
often than every quarter; (5) the interest of such principal, upon the Administrator’s
rate, which shall not exceed (A) the request and if the NEC certifies to the lender
lowest interest rate being then received its approval thereof, in which event provision
by the lender on loans of ten-or-more- for such deferment shall be incorporated into
year terms made by the lender during the loan agreement and interest shall accrue
the preceding twelve months (or, if no and be payable on any interest payments so
such loans have been made during the deferred.
preceding twelve months, on such loans
made by the lender during the preceding Advances to the borrower of loans made
five years; or, if no such loans have been pursuant to this section, and advances to a
made during the preceding five years, on cooperative borrower form any other non-
the longest-term loan made by the lender NEA source, shall be made directly to the
during the preceding three years), or (B) borrower by the lender at such time or times in
six per centum per annum, whichever such amount or amounts as the Administrator
is the lesser: Provided, That if six per approves; and the Administrator, with
centum per annum is lesser, the NEC respect to such loans, advances, application
may, but shall not be required to, fix the by the borrower of such advances to their
interest rate to be not in excess of (i) such purposes, repayments by the borrower of the
higher rate as will result in an average principal of and interest upon such loans, and
interest rate to the borrower of not in all operations of the borrower affecting the
excess of six per centum per annum or loan security and the borrower’s conformity
(ii) the lowest interest rate determined with loan agreements, shall establish
under (A) above, whichever is the lesser; and implement the same procedures and
and (B) the other terms and conditions of requirements affecting the borrower as
the loan; though such loan had been made by the
NEA. Annually, and at any time a borrower’s
(c) Such loan, when added to the outstanding condition indicates that it may default in its
principal indebtedness to such lender for loan agreement, or whenever so requested
any other loans made pursuant to this by such a lender or by the NEC, the NEA shall
section, will not aggregate in excess of furnish a current and comprehensive report
one hundred million pesos; and of the status and operations of the borrower
relating to its ability to conform with its loan
(d) The borrower executes such documents agreement and to its financial and operating
as shall be necessary to effectuate such conditions in general. To the extent that a loan
borrowing and give the lender as security made pursuant to this section has not been
therefor an exclusive or shared first lien advanced to the borrower within five years
on the properties being financed by the after the effective date of the loan agreement,
loan, and the Administrator executes the same shall be rescinded unless the lender
such instruments as shall be necessary to and borrower, upon the NEA’s approval,
release to the lender any after-acquired agree otherwise, which agreement shall be
property clause of, or to share with or executed by all three in writing and become
subordinate in favor of the lender, any a part of the loan agreement.
This section shall not constitute a limitation Electrification Administration from
on the right and ability otherwise lawfully payments to it of the principal of and
possessed by such a lender to make such interest upon any loans it has heretofore
loans to such public service entities on made pursuant to Republic Act Numbered
terms and conditions more favorable to such Twenty-seven hundred seventeen,
entities than herein prescribed. except to the extent such moneys may
have already been allocated to the EA for
SECTION 7. Revolving Fund. – A revolving fund, administrative or other purposes, and all
out of which the Board of Administrators is moneys hereafter received by the NEA
hereby authorized, empowered and directed from payments to it of the principal of
to make loans to public service entities for and interest upon any loans heretofore
the purposes set forth in subparagraph (a) of made under Republic Act Numbered
section 5, is hereby established to consist of Twenty-seven hundred seventeen or
the following: hereafter made under this Act;

(a) Any portion of the Twenty-five Million (f) The sum of Two Million Dollars worth
pesos heretofore appropriated pursuant of goods and services from Japanese
to Section 6 of Republic Act 2717 that Reparations for the fourteenth year
has not already been loaned or, if loaned, schedule and the same amount each year
that has not already been advanced and for the next four year schedules, which
for lawful reason will not be advanced; are hereby allocated to the revolving
fund of the NEA;
(b) The following sums, which are hereby
appropriated: Twenty Million Pesos for (g) The sum of Two Million Pesos for the fiscal
the fiscal year 1970 and the same amount year 1970 and the same amount each
each year for the next nine fiscal years: year for the next four fiscal years, which
Provided, That the Congress shall not be are hereby allocated to the revolving
limited as to the amount it may further fund of the NEA out of the proceeds of
appropriate in any year for this purpose; the sale of Japanese Reparations Goods;
and
(c) Any fund or physical asset which NEC-FS
may make available to the NEA for such (h) The proceeds corresponding to the
loan purposes; share of the National Government in all
franchise taxes paid by electric service
(d) Any fund or physical asset which the entities, which are hereby appropriated
President, pursuant to Section six of for the purpose of augmenting the
Republic Act Numbered Twenty-seven revolving fund.
hundred seventeen, may have already
made, or, as he is hereby authorized No portion of the revolving fund shall,
and empowered so to do, may hereafter without the prior approval of the Congress, be
make available to the NEA for such loan expended by the NEA for any purpose other
purposes from any sum or assets received than the loans herein and in section nine
from or out of Japanese reparations authorized and the acquisition authorized in
including proceeds from the sale thereof section eleven. The Board of Administrators
or loans obtained under the Japanese shall annually, not later than January thirty-
Reparations Treaty; first, report to the Congress and the President
the current status and amount of the revolving
(e) All moneys not already expended which fund and the anticipated status and amount
have heretofore been received by the thereof in the ensuing year.

SEC. 8. Loan Standards. – In making a for such purpose approved by the Board
loan authorized in section 7, the Board of Administrators before being put into
of Administrators is hereby authorized, effect or changed by the borrower; and
empowered and directed:
(f) Subject to the foregoing, to establish
(a) Before making such loans, to determine and require compliance with such
and certify that (1) the project or projects procedures, rules and regulations as the
being financed thereby are financially Board of Administrators may determine
feasible for the purpose of, and will result to be necessary or appropriate to assure
in, area coverage in the area or areas to that the purposes of such loan will
be affected thereby; (2) funds are or will be timely achieved and that the loan
be available for the total advance of such agreement and the provisions of this Act
loan to the borrower on the schedule will be complied with.
contemplated by the loan agreement,
subject only to the borrower’s compliance Notwithstanding the foregoing provisions of
with the loan agreement; and (3) in the this section, the Board of Administrators may
NEA’s judgment the security for such loan fix any higher interest rate or any shorter or
is reasonably adequate and the principal longer term for loans made from funds or
of and interest upon such loan will be physical assets made available from sources
repaid on schedule and within the time stated in subparagraphs (c) and (d) of section
agreed; 7, but only if and not to exceed the extent
to which such is required by, or otherwise
(b) To require that such loan be self- is made a condition of the availability of
liquidating within a term to be fixed by such funds or assets from, such sources:
the NEA of not in excess of thirty-five Provided, That the Board of Administrators
years and, unless the borrower requests may, unless the conditions attaching to the
a shorter term, of not less than twenty- availability of such funds require otherwise,
five years; combine such funds with the other funds in
the revolving fund and fix a blended interest
(c) To impose upon the loan principal an charge on loans made generally therefrom
interest charge to be fixed by the NEA at not in excess of the rate which will assure
at not in excess of three per centum per repayment to the revolving fund of interest at
annum; three per centum per annum on that portion
of funds not derived from such sources and of
(d) To fix the schedule for repayment of such higher interest per centum per annum
the principal of and the interest upon as is required on that portion of funds that is
such loan in installments recurring not derived from such sources.
more often than every quarter, which
installments may be in unequal amounts SECTION 9. Loans for Electric–Related
and larger in the later years of the loan Purposes. – The Board of Administrators is
term than in the earlier years; hereby authorized, empowered and directed
to make loans, out of the revolving fund,
(e) To require in the loan agreement that for the purpose of financing the wiring of
the borrower’s rates, charges, rules and premises of persons served or to be served as
regulations, policies and all other terms a result of loans made under Section 7, and
and conditions affecting its extension and for the acquisition and installation by such
furnishing of service shall be such as to persons of electrically-powered appliances,
assure achievement of the loan purposes, equipment, fixtures and machinery of all kinds
and that the same shall be filed with and for commercial, agricultural and industrial

uses. Such loans may be made directly (a) to additional borrowings from another lender
public service entities which have received not undertaken, to release any after-acquired
loans under section 7, which entities shall property clause contained in any lien the
relend such funds to persons served or to be NEA holds on a borrower’s properties to, or
served by them, or (b) to any person served to share any such lien on a co-equal basis
or to be served by such an entity. Such in proportion to their respective loans with,
loans shall be made for such terms, shall or to subordinate any such lien in favor of,
bear interest at such rate not to exceed six any other lender of funds to a public service
per centum per annum, and shall be subject entity for the purposes for which loans are
to such other terms and conditions as the authorized under this Act.
Board of Administrators shall determine
to be necessary and appropriate to assure SECTION 11. Enforcement Powers. – If any
repayment thereof within the time agreed: public service entity which has borrowed
Provided, however, That at no time shall the funds from the NEA, or from any other lender
total of loans made for the purposes stated through the services of the NEA as its agent, or
under this section exceed ten per centum of from any other lender with the NEA’s lawfully
the total of the revolving fund nor shall any required prior approval, shall default in its
such loan to any borrower exceed ten per principal or interest payments, or shall fail,
centum of the total loan to such borrower after notice from the NEA, to comply with any
from the revolving fund. other term or condition of a loan agreement
or of any rule or regulation promulgated by
SECTION 10. Authority to Extend Loans the NEA in administering the provisions of
and Release or Subordinate Securities. – this Act, the Board of Administrators is hereby
Whenever in its judgment such is necessary or authorized and empowered in its discretion
desirable to achieve the purposes of this Act, to do any or any combination of the following:
and particularly if such is necessary to make
or keep a project operationally viable, the (a) Refuse to make, secure as agent, or give
Board of Administrators is hereby authorized any lawfully required approval to, any
and empowered (a) by agreement with the new loan to the borrower;
borrower, to extend the time of payment of
principal or interest, or both, beyond the loan (b) Withhold without limitation the NEA’s
agreement term of any loan made by the NEA advancement, or withhold its approval
under this Act, or to defer, for not in excess for any other lender with respect to which
of seven years, the time when the repayment the NEA has such approving power to
schedule for principal or interest, or both, make advancement, of funds pursuant to
shall begin, or to re-schedule payments of any loan already made to the borrower;
principal or interest, or both, or when none
of the foregoing is sufficient, to compromise (c) Withhold any technical or professional
and amount owing by a borrower to the NEA assistance otherwise being furnished or
subject to provisions of existing laws; and that might be furnished to the borrower;
(b) upon the NEA’s determination that such
is necessary or desirable for the purpose (d) Foreclose any mortgage or deed of
of enabling a borrower to accomplish the trust or other security held by the NEA
purposes for which it has already received an on the properties of such borrower, in
NEA loan and that such will not result in any connection with which the NEA may,
diminution of the security of, or of the ability subject to any superior or co-equal rights
of the borrower to repay, any outstanding in such lien held by any other lender, (1)
indebtedness of the borrower below the bid for and purchase or otherwise acquire
level of such security and ability were such properties, (2) pay the purchase

price thereof and any costs and expenses No cooperative shall borrow money from any
incurred in connection therewith out of source without the Board of Administrators’
the revolving fund, (3) accept title to such prior approval: Provided, That the Board
properties in the name of the Republic of of Administrators may, by appropriate rule
the Philippines, and (4) operate or lease or regulation, grant general permission to
such properties for such period, not cooperatives to secure short-term loans
exceeding five years, and in such manner not requiring the encumbering of their real
as may be deemed necessary or advisable properties or of a substantial portion of their
to protect the investment therein, other properties or assets.
including the improvement, maintenance
and rehabilitation of foreclosed systems, SECTION 12. Staff. – To enable the NEA to
but the NEA shall, within five years after implement more effectively the provisions
acquiring such properties, sell the same of this Act, the Board of Administrators shall
for such consideration as it determines have and provide for a technical staff and
to be reasonable and upon such terms such other staffs or personnel is it may deem
and conditions as it determines most proper. The Administrator shall appoint
conducive to the achievement of the the personnel of the NEA, subject to the
purposes of this Act; or approval of the Board of Administrators and
the requirements of existing law. He shall,
(e) Take any other remedial measure for furthermore, have control and supervision
which the loan agreement may provide. over them.

In addition to the foregoing, the Board of SECTION 13. Execution of Public Works Acts.
Administrators may, at its own instance and – The NEA shall execute all electrification
in the name of the NEA, petition any court projects that may be authorized in any Public
having jurisdiction for such purpose or any Works Acts; and for this purpose it may call
administrative agency possessing regulatory for assistance and cooperation consistently
powers for such purpose (including the Public with section 5(e).
Service Commission) to issue such order and
afford such lawful relief as may be necessary. SECTION 14. Administrative Expenses. –
The NEA’s administrative expenses shall be
No borrower shall, without the approval appropriated annually by the Congress.
of the Board of Administrators and of any
other lender holding or sharing a lien on SECTION 15. Conflict of Interest. –
such borrower’s properties, sell or dispose
of the property, rights, franchises, permits or (a) No member, officer, attorney, agent, or
any other assets acquired and/or mortgaged employee of the NEA shall in any manner,
under the provisions of this Act until all directly or indirectly, participate in the
outstanding indebtedness to the NEA and determination of any question affecting
any other such lender, including all interest any association or corporation in which he
owing thereon, shall have been repaid: is directly or indirectly interested or any
Provided, That the NEA may by appropriate person to whom he is related within the
rule or regulation grant general permission to third degree of affinity or consanguinity.
borrowers to dispose of incidental properties Any person violating the provisions of this
(excluding real property), rights, franchises, subsection shall be removed from office
permits or other assets no longer deemed and shall upon conviction be punished by
necessary or useful in conducting the a fine not to exceed ten thousand pesos
borrower’s operations. or imprisonment not to exceed five years,
or both.

(b) No officer or employee of the NEA or any for not less than one year nor more than
government official who may exercise three years, or both.
executive or supervisory authority over
the NEA, either directly or indirectly, for (e) Any person who, for the purpose of
himself or as the representative or agent obtaining, renewing, or increasing a loan
of others, shall become a guarantor, or the extension of the period thereof,
endorser, or surety for loans from the on his own or another’s behalf, shall give
NEA to others, or in any manner be an any false information or cause through
obligor for money borrowed from the his intrigue or machination the existence
NEA. Any such officer or employee who and production of any false information
violates the provisions of this subsection with regard to the identity, situation,
shall be punished by a fine of not less productivity or value of security, or with
than one thousand pesos nor more than regard to a point which might affect the
five thousand pesos, or imprisonment for granting or denial of the loan, whether
not less than one year nor more than five the latter has been consummated or not,
years, or both. and every officer or employee of the NEA
who through connivance shall allow by
(c) No loan shall be granted by the NEA to action or omission such false information
any person related to any member of to pass unnoticed, thereby causing
the Board of Administrators or to the damage to the NEA or exposing the latter
Administrator within the third degree to the danger of suffering such damage,
of consanguinity or affinity, or to any shall be punished by a fine of not less
corporation, partnership, or company than the amount of the loan obtained
wherein any member of the Board of or applied for nor more than three times
Administrators or the Administrator such amount, or imprisonment for not
is a shareholder: Provided, That the less than three months nor more than
foregoing prohibition shall not apply three years, or both.
to a cooperative of which any member
of the Board of Administrators or the (l) Any officer or employee of the NEA who
Administrator or any such relative is violates, or causes or permits another
a member. Violation by any member person to violate, and (2) any other
of the Board of Administrators or person who violates or aids or abets the
the Administrator of the provisions violation of, any provision of this Act not
of this subsection is sufficient cause specifically punishable in the preceding
for his removal by the President of subsections shall be punished by a fine
the Philippines; and the violator shall not exceeding two thousand pesos, or
furthermore be punished as provided in imprisonment not exceeding one year, or
subsection (b). both.

(d) No fee, commission, gift, or charge of any SECTION 16. Supervision over NEA; Power
kind shall be exacted, demanded, or paid Development Council. – The NEA shall be
for obtaining loans from the NEA. Any under the supervision of the Office of the
officer, employee or agent of the NEA or President of the Philippines. All orders,
the Government exacting, demanding rules and regulations promulgated, and all
or receiving any fee, commission, gift or appointments made by the NEA as well as
charge of any kind for service in obtaining all transactions subject to the authority and
a loan shall be punished by a fine of not jurisdiction of the NEA involving more than
less than one thousand nor more than five hundred thousand pesos shall be subject
three thousand pesos, or imprisonment to the approval of the Office of the President
of the Philippines.
In order to achieve coordination and being delegated by the Congress; and no
cooperation among different agencies and enumeration of particular powers hereby
sectors having to do with electrification and granted shall be construed to impair any
power development, there is hereby created a general grant of power herein contained, nor
Power Development Council whose Chairman to limit any such grant to a power or powers
shall be a person or official designated by of the same class as those so enumerated.
the President of the Philippines, and its Such powers shall include, but not be limited
members shall be the manager of the NPC, to, the power:
the NEA Administrator, the Chairman of the
NEC or a representative designated by him, (a) To sue and be sued in its corporate name;
the Chairman of the Presidential Economic
Staff or a representative designated by him, a (b) To have existence for a period of fifty
representative of electric cooperatives to be years;
chosen by a national association of electric
cooperatives, and a representative of the (c) To adopt a corporate seal and alter the
Philippine Electric Plant Owners Association same;
to be designated by its board. The council
shall meet at least once a month and shall (d) To generate, manufacture, purchase,
adopt an integrated plan of electrification and acquire, accumulate and transmit electric
power development, coordinate the activities power and energy, and to distribute, sell,
and operations of all sectors involved in supply and dispose of electric energy
electrification, conduct relevant studies and to persons who are its members and to
researches, and recommend such policies other persons not in excess of ten per
and measures to the proper authorities and centum of the number of its members:
parties concerned as it may deem necessary Provided, however, That a cooperative
to achieve the total electrification objective may furnish electric cold storage or
declared in this Act. processing plant service to non-members
without limitation; and Provided, further,
CHAPTER III That a cooperative which acquires existing
ELECTRIC COOPERATIVES electric facilities may continue service
from such facilities without requiring
SECTION 17. Organization and Purpose. such persons to become members, but
– Cooperative non-stock, non-profit such persons may become members
membership corporations may be organized, upon such terms as may be prescribed in
and electric cooperative corporations the cooperative’s by-laws;
heretofore formed or registered under the
Philippines Non-Agricultural Co-operative Act (e) To assist persons to whom service is or
may as hereinafter provided be converted, will be supplied by the cooperative in
under this Act for the purpose of supplying, wiring their premises and in acquiring
and of promoting and encouraging the fullest and installing electrically-powered
use of, service on an area coverage basis appliances, equipment, fixtures and
at the lowest cost consistent with sound machinery for agricultural, commercial
economy and the prudent management of and industrial uses by the financing
the business of such corporations. thereof or otherwise, and in connection
therewith to wire, or cause to be wired,
SECTION 18. Powers. – A cooperative is such premises, and to purchase, acquire,
hereby vested with all power necessary lease as lessor or lessee, sell, distribute,
or convenient for the accomplishment install and repair such electrically-
of its corporate purpose and capable of powered appliances, equipment, fixtures
and machinery;
(f) To assist persons to whom service is or lending source below the level of such
will be supplied by the cooperative in security and ability were such additional
constructing, equipping, maintaining borrowing not being undertaken;
and operating electric cold storage
or processing plants, by the financing (j) To construct, maintain and operate electric
thereof or otherwise; transmission and distribution lines along,
upon, under and across publicly owned
(g) To construct, purchase, lease as lessee, lands and public thoroughfares, including,
or otherwise acquire, and to equip, without limitation, all roads, highways,
maintain, and operate, and to sell, assign, streets, alleys, bridges and causeways:
convey, lease as lessor, mortgage, pledge, Provided, That such shall not prevent or
or otherwise dispose of or encumber, unduly impair the primary public uses to
electric transmission and distribution which such lands and thoroughfares are
lines or systems, electric generating otherwise devoted;
plants, lands, buildings, structures,
dams, plants and equipment, and any (k) To exercise the power of eminent
other real or personal property, tangible domain in the manner provided by law
or intangible, which shall be deemed for the exercise of such power by other
necessary, convenient or appropriate to corporations constructing or operating
accomplish the purpose for which the electric generating plants and electric
cooperative is organized; transmission and distribution lines or
systems;
(h) To purchase, lease as lessee, or otherwise
acquire, and to use, and exercise and to (l) To become a member of other
sell, assign, convey, mortgage, pledge cooperatives or corporations or to own
or otherwise dispose of or encumber stock therein, provided such cooperatives
franchises, rights, privileges, licenses and or corporations are engaged in a business
easements; or activities germane to or having a
reasonable bearing on the business or
(i) To borrow money and otherwise contract activities of the cooperative, its members,
indebtedness, and to issue notes, bonds, its directors, or its employees;
and other evidence of indebtedness,
and to secure the payment thereof by (m) To conduct its business and exercise its
mortgage, pledge, or deed of trust of, or powers within or without the province or
any other encumbrance upon, any or all provinces in which it supplies service;
of its then owned or after-acquired real or
personal property, assets, franchises, or (n) To adopt, amend and repeal by-laws;
revenues: Provided, That any borrowing
from, or any encumbering of its properties (o) To fix, maintain, implement and collect
as security in favor of, any lending sources rates, fees, rents, tolls and other charges
other than the NEA shall require the prior and terms and conditions for service:
approval of the NEA Administrator and his Provided, That by appropriate rules
certification that such is in furtherance and regulations the NEA shall require
of the purposes and is consistent with that such shall be in furtherance of the
the provisions of this Act, and that such purposes and in conformity with the
borrowing and/or encumbering will provisions of this Act; and
not diminish the security of, or of the
ability of the cooperative to repay, and (p) To do and perform any other acts and
then-outstanding indebtedness of the things, and to have and exercise any
cooperative to the NEA or any other
other powers which may be necessary, purpose. The by-laws shall set forth the basic
convenient or appropriate to accomplish rights and duties of members and directors
the purpose for which the cooperative is and may contain any other provisions for the
organized. regulation and management of the affairs
of the cooperative not inconsistent with its
SECTION 19. Name. – The name of a articles of incorporation or this Act.
cooperative shall include the words “Electric”
and “Cooperative”, and the abbreviation SECTION 23. Members. – Each incorporator
“Inc.”. The name of a cooperative organized of a cooperative shall be a member thereof,
under this Act shall be distinct from the but no other person may become a member
name of any other cooperative already thereof unless such other person agrees to
organized or converted under this Act. The use services furnished by the cooperative
foregoing requirement shall not apply to when made available by it. Membership in a
any cooperative which becomes subject to cooperative shall not be transferable, except
this Act by complying with the provisions of as provided in the by-laws. The by-laws
section 34. may prescribe additional qualifications and
limitations in respect of membership.
SECTION 20. Incorporators. – Five or more
persons, including cooperatives, may organize The provisions of any law or regulation to
a cooperative in the manner hereinafter the contrary notwithstanding, an officer
provided. or employee of the government shall be
eligible for membership in any cooperative
SECTION 21. Articles of Incorporation. – The if he meets the qualifications therefor
articles of incorporation of a cooperative and he shall not be precluded from being
shall recite that they are executed pursuant elected to or holding any position therein,
to this Act and shall state: (a) the name or from receiving such compensation or fee
of the cooperative; (b) the address of its in relation thereto as may be authorized by
principal office; (c) the names and addresses the by-laws: Provided, That elective officers
of the incorporators; and (d) the names and of the government, except barrio captains
addresses of its original directors, who shall and councilors, shall be ineligible to become
constitute the board until the first election officers and/or directors of any cooperative.
of the board by the members; and may For this purpose, individual permission need
contain any other provisions not inconsistent not be obtained from the proper head of
with this Act that are deemed necessary or office: Provided, however, That this authority
advisable for the conduct of its business. Such shall not be construed as a permit to the
articles shall be signed by each incorporator government officer or employee concerned
and acknowledged by at least two of the to devote official time to the affairs of the
incorporators (or on their behalf, if they cooperative.
are cooperatives). It shall not be necessary
to recite in the articles of incorporation SECTION 24. Meetings of Members. –
the purpose for which the cooperative is
organized or any of its corporate powers. (a) An annual meeting of the members of a
cooperative shall be held at such time
SECTION 22. By-Laws. – Unless reserved to and place as shall be provided in the by-
the members in the articles of incorporation, laws.
the power to adopt and thereafter to amend
or repeal by-laws shall vest in and be exercised (b) Special meetings of the members may be
by the board, the affirmative votes of a clear called by the President, by the board, by
majority of all directors in office, after due any three directors or, unless a smaller
notice to all directors, being requisite for such number or percentage be prescribed
in the by-laws, by not less than 100 attend such meeting, such attendance shall
members or five per centum of all constitute a waiver of notice of such meeting,
members, whichever shall be the lesser. unless such person participates herein solely
to object to the transaction of any business
(c) Except as otherwise provided in this Act because the meeting has not been legally
and unless otherwise provided for in the called or convened.
by-laws, written or printed notice stating
the time and place of each meeting of SECTION 26. Board of Directors. –
the members and, in the case of a special
meeting, the purpose or purposes for (a) The business of a cooperative shall be
which the meeting is called, shall be given managed by a board of not less than
to each member, either personally or by five directors, each of whom shall be a
mail, not less than ten days nor more member of the cooperative or of another
than twenty-five days before the date of which is a member thereof. The by-laws
the meeting. If mailed, such notice shall shall prescribe the number of directors,
be deemed to be given when deposited their qualifications other than those
in the Philippine mail with postage prescribed in this Act, the manner of
prepaid, addressed to the member at his holding meetings of the board and of
address as it appears on the records of electing successors to directors who shall
the cooperative. resign, die or otherwise be incapable of
acting. The by-laws may also provide
(d) Unless the by-laws prescribe the presence for the removal of directors from office
of a greater or lesser percentage or and for the election of their successors.
number of the members for such Directors shall not receive any salaries
purpose, a quorum for the transaction of for their services as such and, except in
business at all meetings of the members emergencies, shall not receive any salaries
of a cooperative having not more than for their services to the cooperative
1,000 members shall be five per centum in any other capacity without the
of all members, present in person, and approval of the members. The by-laws
of a cooperative having more than 1,000 may, however, prescribe a fixed fee for
members shall be five per centum of all attendance at each meeting of the board
members or 100, whichever is lesser, and may provide for reimbursement of
present in person. If less than a quorum actual expenses of such attendance and
is present at any meeting, a majority of of any other actual expenses incurred
those present in person may adjourn in the due performance of a director’s
the meeting from time to time without duties.
further notice.
(b) The directors of a cooperative named
(e) Each member shall be entitled to one in any articles of incorporation,
vote on each matter submitted to a vote consolidation, merger or conversion
at a meeting of the members. Voting shall hold office until the next annual
shall be non-cumulative and in person, meeting of the members and until their
but, if the by-laws so provide, may also successors are elected and qualify. At
be by mail or by proxy. each annual meeting or, in case of failure
to hold the annual meeting as specified
SECTION 25. Waiver of Notice. – Any person in the by-laws, at a special meeting called
entitled to notice of a meeting may waive for that purpose, the members shall elect
such notice in writing either before or after directors to hold office until the next
such meeting. If any such person shall annual meeting of the members, except

as otherwise provided in this Act. Each its articles of incorporation by complying
director shall hold office for the term for with the following requirements: Provided,
which he is elected and until his successor however, That a change of location of principal
is elected and qualifies. office may be effected in the manner set forth
in section 30. The proposed amendment shall
(c) Instead of electing all the directors be presented to a meeting of the members,
annually, the by-laws may provide that the notice of which shall set forth or have
each year half of them or one third of attached thereto the proposed amendment
them, or a number as near thereto as or an accurate summary thereof. If the
possible, shall be elected on a staggered proposed amendment, with any changes, is
term basis to serve two-year terms or approved by the affirmative vote of not less
three-year terms, as the case may be. than two-thirds of the total votes cast thereof
at such meeting, articles of amendment
(d) A majority of the board of directors in
shall be executed and acknowledged on
office shall constitute a quorum.
behalf of the cooperative by its president or
(e) The board shall exercise all of the powers vice-president and its seal shall be affixed
of a cooperative not conferred upon or thereto and attested by its secretary. The
reserved to the members by this Act or articles of amendment shall recite that they
by its articles of incorporation or by-laws. are executed pursuant to this Act and shall
state: (1) the name of the cooperative; (2)
SECTION 27. Districts. – The by-laws may the address of its principal office; and (3) the
provide for the division of the territory amendment to its articles of incorporation.
served or to be served by a cooperative The president or vice-president executing
into two or more districts for any purpose, such articles of amendment shall make and
including, without limitation, the nomination annex thereto an affidavit stating that the
and election of directors. The by-laws shall provisions of this section in respect of the
prescribe the boundaries of the districts, or amendment set forth in such articles were
the manner of establishing such boundaries, duly complied with.
the manner of changing such boundaries,
and the manner in which such districts shall SECTION 30. Change of Location of
function. Principal Office. – A cooperative may, upon
authorization of its board or members,
SECTION 28. Officers. – The officers of a change the location of its principal office by
cooperative shall consist of a president, vice- filing a certificate reciting such change of
president, secretary and treasurer, who shall principal office, executed and acknowledged
be elected annually by and from the board. by its president or vice-president under its
When a person holding any such office ceases seal attested by its secretary, in the place
to be a director, he shall ipso facto cease to provided for in section 36.
hold such office. The offices of secretary
and of treasurer may be held by the same SECTION 31. Consolidation. – Any two
person. The board may also elect or appoint or more cooperatives (each of which is
such other officers, agents, or employees as hereinafter designated a “consolidating
it deems necessary or advisable and shall cooperative”) may consolidate into a new
prescribe their powers and duties. Any cooperative (hereinafter designated the
officer may be removed from office and his “new cooperative”), by complying with the
successor elected in the manner prescribed in following requirements:
the by-laws.
(a) The proposition for the consolidation
SECTION 29. Amendment of Articles of of the consolidating cooperatives into
Incorporation. – A cooperative may amend the new cooperative and proposed
articles of consolidation to give effect SECTION 32. Merger. – Any one or more
thereto shall be submitted to a meeting cooperatives (each of which is hereinafter
of the members of each consolidating designated a “merging cooperative”) may
cooperative, the notice of which shall merge into another cooperative (hereinafter
have attached thereto a copy of the designated the “surviving cooperative”) by
proposed articles of consolidation or an complying with the following requirements:
accurate summary thereof.
(a) The proposition for the merger of the
(b) If the proposed consolidation and the merging cooperatives into the surviving
proposed articles of consolidation, with cooperative and proposed articles of
any amendments, are approved by the merger to give effect thereto shall be
affirmative vote of not less than two- submitted to a meeting of the members
thirds of the total votes cast thereon by of each merging cooperative and of the
each consolidating cooperative voting surviving, cooperative, the notice of
thereon at each such meeting, articles which shall have attached thereto a copy
of consolidation in the form approved of the proposed articles of merger or an
shall be executed and acknowledged on accurate summary thereof.
behalf of each consolidating cooperative
by its president or vice-president and (b) If the proposed merger and the proposed
its seal shall be affixed thereto and articles of merger, with any amendments,
attested by its secretary. The articles of are approved by the affirmative vote of
consolidation shall recite that they are not less than two-thirds of the total votes
executed pursuant to this Act and shall cast thereon by each cooperative voting
state: (1) the name of each consolidating thereon at each such meeting, articles
cooperative and the address of its of merger in the form approved shall be
principal office; (2) the name of the executed and acknowledged on behalf of
new cooperative and the address of its each such cooperative by its president
principal office; (3) a statement that or vice-president and its seal affixed
each consolidating cooperative agrees thereto and attested by its secretary.
to the consolidation; (4) the names The articles of merger shall recite that
and addresses of the directors of the they are executed pursuant to this Act
new cooperative; and (5) the terms and and shall state; (1) the name of each
conditions of the consolidation and the merging cooperative and the address of
mode of carrying the same into effect, its principal office; (2) the name of the
including the manner in which members surviving cooperative and the address
of the consolidating cooperatives may of its principal office; (3) a statement
or shall become members of the new that each merging cooperative and
cooperative; and may contain any other the surviving cooperative agree to the
provisions not inconsistent with this Act merger; (4) the names and addresses of
that are deemed necessary or advisable the directors of the surviving cooperative;
for the conduct of the business of the and (5) the terms and conditions of the
new cooperative. The president or merger and the mode of carrying the
vice-president of each consolidating same into effect, including the manner
cooperative executing such articles of in which members of the merging
consolidation shall make and annex cooperatives may or shall become
thereto an affidavit stating that the members of the surviving cooperatives
provisions of this section in respect of and may contain any other provisions
such articles were duly complied with by not inconsistent with this Act that are
such cooperative. deemed necessary or advisable for the

conduct of the business of the surviving (d) Neither the rights of creditors nor any
cooperative. The president or vice- liens upon the property of any such
president of each cooperative executing cooperatives shall be impaired by such
such articles of merger shall make and consolidation or merger.
annex thereto an affidavit stating that
the provisions of this section in respect SECTION 34. Conversion of Existing
of such articles were duly complied with Corporations. – Any corporation heretofore
by such cooperative. organized or registered under the Philippine
Non-Agricultural Co-operative Act and
SECTION 33. Effect of Consolidation or supplying or having the corporate power to
Merger. – supply electric energy may convert itself into
a cooperative under this Act by complying
(a) In the case of a consolidation, the with the following requirements, and shall
existence of the consolidating thereupon become subject to this Act with
cooperative shall cease and the articles the same effect as if originally organized
of consolidation shall be deemed to hereunder:
be the articles of incorporation of the
new cooperative; and in the case of a (a) The proposition for the conversion of
merger, the separate existence of the such corporation and proposed articles of
merging cooperatives shall cease and conversion to give effect thereto shall be
the articles of incorporation of the submitted to a meeting of the members
surviving cooperative shall be deemed or stockholders of such corporation,
to be amended to the extent, if any, that the notice of which shall have attached
changes therein are provided for in the thereto a copy of the proposed articles
articles of merger; of conversion or an accurate summary
thereof.
(b) All the rights, privileges, immunities
and franchises and all property, real and (b) If the proposition for the conversion and
personal, including without limitation the proposed articles of conversion, with
applications for membership, all debts any amendments, are approved by the
due on whatever account and all affirmative vote of not less than two-
other choses in action of each of the thirds of the total votes cast thereon
consolidating or merging cooperatives by members at such meeting, and/or, if
shall be deemed to be transferred to such corporation is a stock corporation
and vested in the new or surviving or has both members and voting
cooperative without further act or deed; stockholders, by the affirmative vote of
the holders of not less than two-thirds
(c) The new or surviving cooperative shall of those shares of the capital stock of
be responsible and liable for all the such corporation represented at such
liabilities and obligations of each of the meeting and voting thereon, articles of
consolidating or merging cooperatives, conversion in the form approved shall be
and any claim existing or action or executed and acknowledged on behalf
proceeding pending by or against any of of such corporation by its president or
the consolidating or merging cooperatives vice-president and its seal shall be affixed
may be prosecuted as if the consolidation thereto and attested by its secretary.
or merger had not taken place, but the The articles of conversion shall recite
new or surviving cooperatives shall be that they are executed pursuant to this
substituted in its place; and Act and shall state: (1) the name of
the corporation and the address of its
principal office prior to its conversion
into a cooperative; (2) a statement that to the extent necessary for the winding up
such corporation elects to become a thereof, but its corporate existence shall
cooperative, non-profit, membership continue until articles of dissolution have
corporation subject to this Act; (3) its been filed. The board shall immediately
name as a cooperative; (4) the address of cause notice of the dissolution proceedings
the principal office of the cooperative; (5) to be mailed to each known creditor of and
the names and addresses of the directors claimant against the cooperative and to be
of the cooperative, and (6) the manner published once a week for two successive
in which members or stockholders of weeks in a newspaper of general circulation
such corporation may or shall become in the territory in which the principal office
members of the cooperative; and of the cooperative is located. The board
may contain any other provisions not shall wind up and settle the affairs of the
inconsistent with this Act that are deemed cooperative, collect sums owing to it,
necessary or advisable for the conduct liquidate its property and assets, pay and
of the business of the cooperative. The discharge its debts, obligations and liabilities,
president or vice-president executing other than those to patrons arising by reason
such articles of conversion shall make of their patronage, and do all other things
and annex thereto an affidavit stating required to wind up its business; and, after
that the provisions of this section were paying or discharging or adequately providing
duly complied with in respect of such for the payment or discharge of all its debts,
articles. The articles of conversion obligations and liabilities, other than those to
shall be deemed to be the articles of patrons arising by reason of their patronage,
incorporation of the cooperative. shall distribute any remaining sums and/
or unliquidated assets, first, to patrons for
SECTION 35. Dissolution. – A cooperative the pro rata return of all amounts standing
may be dissolved in the following manner: to their credit by reason of their patronage;
The proposition to dissolve shall be submitted second, to members for the pro rata
to the members of the cooperative at any repayment of membership fees; and third, to
annual or special meeting, the notice of patrons for the amounts of any outstanding
which shall set forth such proposition. The contributions in aid of construction they
members at any such meeting shall approve, have made. Any sums and/or unliquidated
by the affirmative vote of not less than a assets then remaining shall be distributed in
majority of all members of the cooperative, such manner as provided in the cooperative’s
the proposition that the cooperative be articles of incorporation or by-laws, which
dissolved. Upon such approval, a certificate may provide for distribution of such sums or
of election to dissolve (hereinafter designated assets on a patronage basis to persons who
the “certificate”) shall be executed and were members in one or more prior years or
acknowledged on behalf of the cooperative for transfer thereof to a new cooperative to
by its president or vice-president under its succeed the one being dissolved. The board
seal, attested by its secretary, stating: (1) the shall thereupon authorize the execution
name of the cooperative; (2) the address of of articles of dissolution, which shall be
its principal office; and (3) that the members executed and acknowledged on behalf of
of the cooperative have duly voted that the the cooperative by its president or vice-
cooperative be dissolved. Also, an affidavit, president, and its seal shall be affixed thereto
made by its president or vice-president and attested by its secretary. The articles of
executing the certificate, shall state that the dissolution shall recite that they are executed
statements in the certificate are true. Upon pursuant to this Act and shall state: (1) the
the filing of the certificate and affidavit as name of the cooperative; (2) the address of
provided for in section 36, the cooperative its principal office; (3) the date on which the
shall cease to carry on its business except certificate of election to dissolve was filed;
(4) that there are no actions or suits pending financial feasibility of the cooperative’s entire
against the cooperative; (5) that all debts, operation, the cooperative may require such
obligations and liabilities of the cooperative contribution in aid of construction, such
have been paid and discharged or that facilities extension deposit, such guarantee of
provision to the extent possible has been minimum usage for a minimum term, or such
made therefor; and (6) that the provisions of other reasonable commitment on the part of
this section have been duly complied with. the person to be served as may be necessary
The president or vice-president executing and appropriate to remove such jeopardy,
the articles of dissolution shall make and but no difference in standard rates for use of
annex thereto an affidavit stating that the service shall be imposed for such purpose.
statements made therein are true.
The by-laws of a cooperative or its contracts
SECTION 36. Filing of Articles and Certificates. with members and patrons shall contain such
– Articles of incorporation, amendment, reasonable terms and conditions respecting
consolidation, merger, conversion, or membership, the furnishing of service and the
dissolution and certificates of changes disposition of revenues and receipts as may
in the location of principal offices and of be necessary and appropriate to establish and
elections to dissolve, when executed and maintain its non-profit, cooperative character
acknowledged and accompanied by such and to assure compliance with this section.
affidavits as may be required by applicable No bona fide applicant for membership or
provisions of this Act, shall be presented to non-member patronage who is able and
the Administrator for filing in the records of willing to satisfy and abide by all such terms
his office. If he shall find that such conform and conditions shall be denied arbitrarily,
to the requirements of this Act, he shall so capriciously or without good cause.
certify and shall file such in the records of his
office. Upon such certification and filing, the SECTION 38. Disposition of Property. –
incorporation, amendment, consolidation,
merger, conversion, dissolution or certificate (a) The board of a cooperative shall have
provided for therein shall be in effect. full power and authority, without
authorization by the members thereof,
SECTION 37. Non-profit, Non-discriminatory, to authorize the execution and delivery
Area Coverage Operation and Service. – A of a mortgage or a deed of trust, on the
cooperative shall be operated on a non-profit pledging or encumbering otherwise, of
basis for the mutual benefit of its members any or all of the property, assets, rights,
and patrons; shall, as to rates and services privileges, licenses, franchises and permits
make or grant no unreasonable preference of the cooperative, whether acquired or
or advantage to any member or patron to be acquired, and wherever situated, as
nor subject any member or patron to any well as the revenues therefrom, all upon
unreasonable prejudice or disadvantage; shall such terms and conditions as the board
not establish or maintain any unreasonable shall determine, to secure any borrowing
difference as to rates or services either as by or indebtedness of the cooperative.
between localities or as between classes of
service; shall not give, pay, or receive any (b) A cooperative may not otherwise sell,
rebate or bonus, directly or indirectly, or lease or except by consolidation or
mislead its members in any manner as to merger, otherwise dispose of its property
rates charged for its services; and shall furnish (other than merchandise and property
service on an area coverage basis: Provided, which shall represent not in excess
That, for any extension of service which if of ten per centum of the value of the
treated on the basis of standard terms and cooperative’s total assets, or which in the
conditions is so costly as to jeopardize the judgment of the board are not necessary
or useful in operating the cooperative) municipal taxes and fees, including any
unless such sale, lease or, except in franchise, filing, recordation, license
the case of consolidation or merger, or permit fees or taxes and any fees,
other disposition is (1) authorized by charges or costs involved in any court
the affirmative vote of not less than or administrative proceeding in which
a majority of all the members of the it may be a party, and (B) of all duties
cooperative and (2) consented to by or imposts on foreign goods acquired
the NEA and any other lending source for its operations, the period of such
which then holds a lien on any of the exemption for a new cooperative formed
cooperative’s properties. by consolidation, as provided for in
section 31, to begin from as of the date
SECTION 39. Non-liability of Members for of the beginning of such period for the
Debts of Cooperative. – No member shall constituent consolidating cooperative
be liable or responsible for any debts of the which was most recently organized or
cooperative and the property of the members converted under this Act: Provided,
shall not be subject to execution therefor. That the Board of Administrators shall,
after consultation with the Bureau of
SECTION 40. Limitation of Actions. – No Internal Revenue, promulgate rules and
action or suit may be brought against a regulations provided for in this Act.
cooperative, or against any agent, servant
or employee thereof, by reason of the (b) The National Power Corporation shall,
maintenance of electric transmission or except with respect to the National
distribution lines, or any related equipment, Government, give preference in the sale
facilities or machinery, on any real property of its power and energy to cooperatives,
after the expiration of a period of five years and shall otherwise provide the maximum
of continuous maintenance of such lines or support of and assistance to cooperatives
related equipment facilities or machinery. of which it is capable, including assistance
in developing dependable and reliable
SECTION 41. Assistance to Cooperatives; arrangements for their supplies of bulk
Exemption from Taxes, Imposts, Duties, power, either from itself or from other
Fees; Assistance from the National Power sources. In pursuance of the foregoing
Corporation; Protection of Franchise. – policy, the National Power Corporation
Pursuant to the national policy declared in shall not, except upon prior written
section 2, the Congress hereby finds and agreement approved by the cooperative’s
declares that the following assistance to board, compete in the sale of power and
cooperatives is necessary and appropriate: energy which, without regard to the
location of the point of delivery thereof,
(a) Provided that it operates in conformity will be utilized and consumed within any
with the purposes and provisions of area franchise to a cooperative.
this Act, a cooperative (1) shall be
permanently exempt from paying income (c) No franchise for service shall be granted
taxes, and (2) for a period ending on to any other person within any area or
December 31 of the thirtieth full calendar portion for which a cooperative holds a
year after the date of a cooperative’s franchise unless and except to the extent
organization or conversion hereunder, that (1) the cooperative’s board consents
or until it shall become completely free thereto by resolution duly adopted
of indebtedness incurred by borrowing, or (2) the Public Service Commission
whichever first occurs, shall be exempt determines that the cooperative is unable
from the payment (A) of all National within a reasonable time, or is unwilling,
Government, local government and to supply service therein in accordance
with the provisions of section 37. Other than an order to require information
filings, as provided in (3) of this subsection,
SECTION 42. Regulation by the Public Service the Commission shall issue no order in the
Commission and Securities and Exchange exercise of the foregoing powers without
Commission. – Pursuant to the national affording the cooperative and any other
policy declaration in section 2, the Congress interested person who requests it an
hereby establishes that: opportunity to be heard. Except as provided
in this subsection, a cooperative shall be
(a) To the extent that the Public Service exempt from regulation or control by the
Commission now is or may hereafter be Public Service Commission.
authorized and empowered to do so with
respect to other electric public services, (b) The provisions of the Securities Act shall
the Commission is hereby authorized and not apply to any note, bond or other
empowered: evidence of indebtedness issued by any
cooperative or to any mortgage, deed
(1) To grant, condition, restrict or cancel of trust or other instrument executed
a cooperative’s franchise, or to to secure the same. The provisions of
determine whether a cooperative is said Act shall not apply to the issuance
qualified to receive a franchise; of membership certificates or any other
evidence of member or patron interest
(2) To require a cooperative to extend by a cooperative.
or improve service upon the
Commission’s determination that CHAPTER IV
such should be done in furtherance of TRANSITORY PROVISIONS
the public convenience and necessity
and that such may reasonably be SECTION 43. The Electrification
done consistently with the purposes Administration. – Republic Act Numbered
and provisions of this Act; Twenty seven hundred seventeen is
hereby repealed and the Electrification
(3) To require a cooperative to cease Administration created under it is hereby
any discriminatory practice which dissolved in the manner hereinafter provided:
the Commission finds to be in effect
in violation of section 37; and, in (a) The incumbent Administrator and
connection with such authority, to Two Deputy Administrators of the
require a cooperative to file with Electrification Administration shall
the Commission for information continue to serve the balance of the
purposes, and to make accessible to unserved portion of their respective
any person upon request therefor, terms of office;
copies of all rates, charges, contract
forms, fee or deposit schedules, by- (b) Any reference to the Electrification
laws, rules and regulations; and Administration in any existing law or in
any executive order, administrative order
(4) To require a cooperative to or proclamation of the President shall,
interconnect its facilities with, and with respect to any duty or function
through such interconnection to sell assumed by the NEA created in this Act,
or exchange electric energy to or be deemed hereafter to have reference
with, other electric public services to the NEA;
or the National Power Corporation
if the National Power Corporation so (c) The properties, assets, rights, chooses
requests or consents thereto: in action, obligations, liabilities, records
and contracts of the Electrification insofar as found to be economically
Administration are hereby transferred to, feasible in accordance with sound
and are vested in, and assumed by the management engineering and
NEA; technological standards, shall be
continued and completed on a priority
(d) The personnel of the Electrification basis: Provided, that steps shall be taken
Administration who are occupying civil to place them on an area coverage basis.
service positions shall be absorbed
and transferred to the latter without SECTION 44. Separability of Provisions. – If
demotion in rank nor reduction in salary: any provisions of this Act, or the application of
Provided, That those employees who such provision to any person or circumstance,
shall be separated from the service and is declared invalid, the remainder of the
those not absorbed by the NEA shall Act or the application of such provision to
be given by the said office at least one other persons or circumstances shall not be
month gratuity for every year of service affected by such declaration.
and, or other benefits in accordance with
existing laws and regulations chargeable SECTION 45. Effect on Other Acts. – All Acts
to the corresponding fund and, or any or parts of Acts inconsistent herewith are
available fund under paragraph (a), repealed or modified accordingly.
section seven of this Act; and
SECTION 46. Effectivity. – This Act shall take
(e) All on-going projects and/or approved effect upon its approval.
loans under the Electrification
Administration shall be reviewed and, Approved, July 28, 1969


CREATING THE “NATIONAL ELECTRIFICATION ADMINISTRATION” AS A CORPORATION, PRESCRIBING
ITS POWERS AND ACTIVITIES, APPROPRIATING THE NECESSARY FUNDS THEREFOR AND DECLARING
A NATIONAL POLICY OBJECTIVE FOR THE TOTAL ELECTRIFICATION OF THE PHILIPPINES ON AN AREA
COVERAGE SERVICE BASIS, THE ORGANIZATION, PROMOTION AND DEVELOPMENT OF ELECTRIC
COOPERATIVES TO ATTAIN THE SAID OBJECTIVE, PRESCRIBING TERMS AND CONDITIONS FOR
THEIR OPERATIONS, THE REPEAL OF REPUBLIC ACT NO. 6038, AND FOR OTHER PURPOSES
WHEREAS, it is the desire of the government WHEREAS, electrification of the entire

to effect changes and reforms in the social, country, one of the primary concerns of
economic, and political structure of our the government in order to bring about the
society; desired changes and reforms, can be hastened
by rationalizing the distribution of electricity;
WHEREAS, detailed studies have clearly
emphasized the very close correlation WHEREAS, rationalization, which implies
between consumption of energy and gross the adoption of all measures necessary to
national product. Electric power, wherever obtain the maximum benefit at the minimum
introduced, stimulates the growth of industry expenses, can be achieved by:
and the economy in general;

(1) Establishing island grids and integrating the law of the land the Charter of the National
power generating systems. Electrification Administration, which reads as
follows:
(2) Consolidating electric distribution
franchise systems. The existence of small CHAPTER I
franchise system impede the progress of Policy and Definitions
total electrification, as such small and
isolated systems are antithetical to the SECTION 1. Title. – This Decree shall be
economies of scale. referred to as the “National Electrification
Administration Decree.”
(3) Implementing the area coverage concept,
which will allow the construction of lines SECTION 2. Declaration of National Policy. –
to thinly settled areas which are most The total electrification of the Philippines on an
costly to electrify, provided that the area coverage basis being vital to the welfare
losses from these lines can be reasonably of its people and the sound development of
absorbed by the more profitable lines. the Nation, it is hereby declared to be the
policy of the state to pursue and foster, in an
WHEREAS, under Republic Act No. 6038, orderly and vigorous manner, the attainment
dated August 4, 1969, Presidential Decree of this objective. For this purpose, the State
No. 40 and Letter of Instruction No. 38, shall promote, encourage and assist all public
dated November 7, 1972, the National service entities engaged in supplying electric
Electrification Administration was given service, particularly electric cooperatives,
certain powers, duties, and functions to attain which are willing to pursue diligently this
total electrification on an area coverage basis; objective.
to set up cooperatives for the distribution of
power; and to determine privately-owned Because of their non-profit nature,
public utilities which should be permitted to cooperative character and the heavy financial
remain in operation; burdens that they must sustain to become
effectively established and operationally
WHEREAS, to attain total electrification in the viable, electric cooperatives, particularly,
most effective and efficient manner, there shall be given every tenable support and
is a need to further strengthen and make assistance by the National Government, its
more flexible the organizational structure of instrumentalities and agencies to the fullest
the National Electrification Administration extent of which they are capable; and, being
by converting it into a corporation, wholly- by their nature substantially self-regulating
owned and controlled by the government, and Congress, having, by the enactment of
possessed with borrowing authority and this Decree, substantially covered all phases
corporate powers; of their organization and operation requiring
or justifying regulation, and in order to further
NOW, THEREFORE, I, FERDINAND E. MARCOS, encourage and promote their development,
President of the Republic of the Philippines, they should be subject to minimal regulation
by virtue of the powers vested in me by by other administrative agencies.
the Constitution as Commander-in-Chief
of the Armed Forces of the Philippines, and Area coverage electrification cannot be
pursuant to Proclamation No. 1081, dated achieved unless service to the more thinly
September 21, 1972, and General Order No. settled areas and therefore more costly to
1, dated September 22, 1972, as amended, electrify is combined with service to the
do hereby repeal Republic Act No. 6038 and most densely settled areas and therefore
do hereby decree, order and make as part of less costly to electrify. Every public service

entity should hereafter cooperate in a corporation, business trust, partnership,
national program of electrification on an the National Government or any political
area coverage basis, or else surrender its subdivision, agency or instrumentally
franchise in favor of those public service thereof.
entities which will. It is hereby found that
the total electrification of the Nation requires (e) “Service” shall mean electric service,
that the laws and administrative practices either at wholesale or retail, including
relating to franchised electric service areas be the finishing of any auxiliary or related
revised and made more effective, as herein service.
provided. It is therefore hereby declared to
be the policy of the State that franchises for (f) “Dependable and adequate service”
electric service areas shall hereafter be so shall mean service that, consistent with
issued, conditioned, altered or repealed, and normal standards and levels of service
shall be subject to such continuing regulatory based upon good utility management
surveillance, that the same shall conduce to and operating practices, is sufficient
the most expeditious electrification of the in quantity, having regard for the
entire Nation on an area coverage basis. demands for service currently existing
and reasonably anticipated within the
SECTION 3. Definitions. – As used in this foreseeable future, and that is accessible
Decree, the following words or terms shall on a constant and continuous basis
have the following meanings, unless a except for outages occasioned by the
different meaning clearly appears from the need for normal repair, maintenance,
context: construction or renovation work or by
acts beyond the reasonable ability of
(a) “NEA” shall mean the National the public service entity to prevent or
Electrification Administration, “Board of control.
Administrators” shall mean the Board of
Administrators, and “Administrator” shall (g) “Area” shall mean (1) the geographic
mean the Administrator, all as provided area franchised to a public service
for in this Decree. entity or (2) any lesser geographic area
for the furnishing of retail service to
(b) “Cooperative” shall mean a corporation which a public service entity pursuant
organized under Republic Act No. 6038 to this Decree borrows, or may apply
or this Decree or cooperative supplying to borrow, funds from the NEA, or may
or empowered to supply service which otherwise secure loans with the approval
has heretofore been organized under the of the NEA, to finance the acquisition or
Philippine Non-Agricultural Cooperative construction and operation, maintenance
Act, whether covered under this Decree or renovation of service facilities.
or not.
(h) “Area coverage” shall mean dependable
(c) “Public service entities” shall mean and adequate service that, on the basis
(1) a cooperative, (2) the NPC, and (3) of reasonable and standard extension
local governments and privately-owned and service policies, rates, charges and
public service entities in operation which other terms and conditions, will be or
furnish and are empowered to furnish is being made available to all persons
retail electric service. within the affected area as above defined
who request such service and are able
(d) “Person” shall mean any natural and willing to abide by and comply
person, firm, association, cooperative, with all such reasonable and standard

terms and conditions, regardless of the (n) “Non-profit” shall mean that a
relative location of such persons within cooperative shall not engage in business
the affected area or of their proximity for the purpose of making a profit for
to existing or proposed service facilities: itself or its patrons, but it shall not mean
Provided, That the financial feasibility that a cooperative may not account
of the public service entity’s entire on a patronage basis to its patrons for
operation is not thereby impaired. any receipts in excess of its expenses in
relation to its operations in serving such
(i) “Interest rate per centum per annum” patrons or in relation to investment of
shall mean an interest rate that is accrued any of its surplus funds pending their
solely upon the unpaid balance of any use by the cooperative or their refund
loan principal which has actually been to patrons; nor shall it mean that such
advanced to a borrower and upon any excess receipts may not be refunded
interest payment which has become due to its patrons, or may not be converted
or been deferred and has not been paid into patron- furnished capital subject to
by the borrower; computed on an annual later redemption and retirement by the
basis. cooperative.

(j) “Loan” shall mean a loan the total (o) “Board” shall mean the board of directors
principal amount of which, as and when of a cooperative.
required for application to the purposes
thereof, is, at the time of the making (p) “Household” shall mean a non-seasonal
thereof, assured from funds that are or dwelling capable of receiving service
will become available therefor. safely, including apartments and other
dwelling combinations.
(k) “NEDA” shall mean National Economic
and Development Authority or any (q) “Congress” shall mean the President
successor or instrumentality that may during his exercise of Martial Law, or
hereafter be established to perform the the National Assembly under the new
same or substantially similar function; Constitution of 1973, whichever is the
“NPC” shall mean National Power case at any given time.
Corporation; and “NEDA-FS” shall mean
National Economic and Development (r) “President” shall mean the President
Authority-Foreign Source. of the Philippines during the existence
of Martial Law, or the Prime Minister
(l) “Board of Power and Waterworks” shall when the National Assembly comes into
mean Board of Power and Waterworks existence.
or any successor board, agency or
instrumentality that may hereafter be CHAPTER II
established to perform the same or The National Electrification Administration
substantially similar functions.
SECTION 4. NEA Authorities, Powers and
(m) “Franchise” shall mean the privilege Directives. – The NEA is hereby authorized,
extended to a person to operate an empowered and directed to promote,
electric system for service to the public at encourage and assist public service entities,
retail within a described geographic area, particularly cooperatives, to the end of
whether such privilege had been granted achieving the objective of making service
by the Congress, by a municipal, city available throughout the nation on an area
or provincial government or, as herein coverage basis as rapidly as possible; and for
provided, by the NEA.
such purpose it is hereby, without limiting the maintaining, repairing and renovating
generality of the foregoing and in addition to facilities and systems to supply area
other authorizations, powers and directives coverage service, and for such purpose
established by this Decree, specifically to furnish, to the extent possible and
authorized, empowered and directed: without change therefor, technical and
professional assistance and guidance,
(a) To have a continuous succession under its information, data and the results of any
corporate name until otherwise provided investigation, study, or receipt conducted
by law; or made by the NEA;

(b) To prescribe and thereafter to amend (h) To approve or disapprove any loan from
and repeal its by-laws not inconsistent other lenders to public service entities
with this Decree; which at the time are borrowers from
NEA under sub-paragraphs (f) or (i) of
(c) To adopt and use a seal and alter it at its this section, and thereafter, pursuant to
pleasure; Section 10 (b) to disapprove advances of
loans from other lenders;
(d) To sue and to be sued in any court:
Provided, That NEA shall, unless it (i) To make loans for the purpose of financing
consents otherwise, be immune to suits the wiring of premises of persons served
for acts ex delicti; or to be served as a result of loans made
under sub-paragraph (f) of this Section,
(e) To make contract of every name and and for the acquisition and installation
nature and to execute all instruments by such persons of electrically-powered
necessary or convenient for the carrying appliances, equipment, fixtures and
on of its business; machinery of all kinds for residential,
recreational, commercial, agricultural
(f) To make loans to public service entities, and industrial uses, such loans to be
with preference to cooperatives, for the made directly (1) to public service
construction or acquisition, operation entities which have received loans under
and maintenance of generation, sub-paragraph (f) of this section, which
transmission and distribution facilities entities shall in turn relend such funds
and all related properties, equipment, to persons served or to be served by
machinery, fixtures, and materials for them, or (2) to any persons served or to
the purpose of supplying area coverage be served by public service entities which
service, and thereafter to make loans have received loans under sub-paragraph
for the restoration, improvement or (f) of this section: Provided, That at no
enlargement of such facilities; Provided, time shall the total loans made under
That the public service entity supplying this sub-paragraph (i) to a public service
for a loan, if neither a cooperative nor a entity and/or to persons served or to be
local government, must be in operation served by such entity exceed twenty-five
at the time of application; (25%) per centum of the outstanding
loans to such entity made under sub-
(g) To promote, encourage and assist paragraph (f) of this section;
public service entities and government
agencies and corporations having related (j) To so cooperate, coordinate and exchange
functions and purposes, with preference such information, studies and reports
to cooperatives, in planning, developing, with, and to seek such cooperation and
coordinating, establishing, operating, coordination from, other departments,

agencies and instrumentalities of the by the NEA solely as agent for and on
National Government, including the behalf of one or more public service
NPC, as will most effectively conduce to entities which shall timely receive, own
the achievement of the purposes of this and utilize or replace such properties for
Decree; the purpose of furnishing adequate and
dependable service on an area coverage
(k) To borrow funds from any source, private basis, which entity or entities shall then
or government, foreign or domestic, be, or in connection with the acquisition
and, not inconsistently with Section 8, shall become, borrowers from the NEA
to issue bonds or other evidences of under sub-paragraph (f) of this section;
indebtedness therefor and to secure the and Provided further, That the costs
lenders thereof by pledging, sharing or of such acquisition, including the cost
subordinating one or more of the NEA’s of any eminent domain proceedings,
own loan securities; shall be borne, either directly or by
reimbursement to the NEA, whichever
(l) To receive from cooperatives all the NEA shall elect, by the public service
articles of incorporation, amendments, entity or entities on whose behalf the
consolidation, merger, conversion and acquisition is undertaken; and otherwise
dissolution, and all certificates of changes to acquire, improve, hold, transfer, sell,
in the location of principal offices and lease, rent, mortgage, encumber and
of elections to dissolve, and, upon otherwise dispose of property incident
determining that such are in conformity to, or necessary, convenient or proper
with this Decree, to certify the same, to to carry out, the purposes for which NEA
file them in the records of the NEA, and was created;
to maintain a registry of such filings the
provisions of Act No. 1459, as amended, (n) At least annually, not later than June
to the contrary notwithstanding; 30th, to report to the President and when
the same comes into existence, the Prime
(m) To acquire, by purchase or otherwise Minister and the National Assembly,
(including the right of eminent domain, on the status of electrification of the
which is hereby granted to the NEA, to Philippines, including a comprehensive
be exercised in the manner provided by reporting of loans made, loan funds
law for the institution and completion advanced, loans secured from other
of expropriation proceedings by the sources and the advances thereof, the
National and local governments,) real names and locations of the borrowers,
and physical properties, together with all the number of services contemplated by
appurtenant rights, easements, licenses such loans, the number actually receiving
and privileges, whether or not the same service as a result of such loans, the
be already devoted to the public use of number of electrified and the remaining
generating, transmitting or distributing number of unelectrified households
electric power and energy, upon NEA’s throughout the Nation, the amounts
determination that such acquisition is of usage by consumers, loan and other
necessary to accomplish the purposes activities programmed for the ensuing
of this Decree and, if such properties year, and all such other information and
be already devoted to the public use data as will accurately reveal the progress
described in the foregoing, that such use being made toward the achievement
will be better served and accomplished of the purposes of this Decree; and to
by such acquisition; Provided, That the publish such report for dissemination to
power herein granted shall be exercised and use by other interested departments,

agencies and instrumentalities of the total of such per diems shall not exceed
National Government and by borrowers one thousand five hundred pesos per
under this Decree; and month per member.

(o) To exercise such powers and do such The Board of Administrators shall meet
things as may be necessary to carry out regularly at least twice a month and as
the business and purposes for which the often as the exigencies of the agency’s
NEA was established, or which from time affairs demand.
to time may be declared by the Board of
Administrators to be necessary, useful, The presence of at least three members
incidental or auxiliary to accomplish such shall constitute a quorum which shall
purposes; and generally, to exercise all be necessary for the transaction of
the powers of a corporation under the any business. The affirmative vote of a
Corporation Law insofar as they are not majority of the members present shall
inconsistent with the provisions of this be necessary for the approval of any
Decree. resolution, decision or order, except when
a greater vote is required as sometimes
SECTION 5. National Electrification hereinafter provided. In the absence of
Administration; Board of Administrators; the Chairman at a Board meeting duly
Administrator. – called, the Administrator as ex-officio
member shall preside.
(a) For the purpose of administering the
provisions of this Decree, there is hereby The Board shall, without limiting the
established a public corporation to be generality of the foregoing, have the
known as the National Electrification following specific powers and duties.
Administration. All of the powers of
the corporation shall be vested in and (1) To implement the provisions and
exercised by a Board of Administrators, purposes of this Decree;
which shall be composed of a Chairman
and four (4) members, one of whom (2) To formulate and adopt policies and
shall be the Administrator as ex-officio plans, and to promulgate rules and
member. The Chairman and the three regulations, for the management,
other members shall be appointed operation and conduct of the
by the President of the Philippines to business of the NEA;
serve for a term of six years. Provided,
That the terms of the first appointees (3) To adopt and, as may be necessary
shall be six years for the Chairman and from time to time, to amend annual
one member and three years for the budgets for the NEA’s borrowing
two other members, respectively, and and lending programs and for the
that the term of the ex-officio member agency’s administration; Provided,
shall be co-terminus with his term as That copies of such budgets shall
the Administrator. All vacancies, except be submitted to the President or
through expiration of the terms, shall the appropriate committee of and
be filled for the unexpired term only. as determined by, the National
The Chairman and every member of the Assembly, when it comes into
Board of Administrators shall be entitled existence, within fifteen (15) days
to a per diem of not more than three from the transmission thereof to
hundred pesos for each meeting actually the NEDA; and Provided, further,
attended by them; Provided, That the That the administrative budget and

any amendments thereto shall be (4) Subject to the guidelines and
subject to the approval of NEDA; policies established by the Board of
Administrators, to appoint and fix
(4) To fix the compensation of the the number and compensation of
Administrator and of the Deputy subordinate officials and employees
Administrators, subject to the of the NEA: Provided, however, That
approval of the President of the the provisions of the Civil Service
Philippines; and Law and Position Classification Law
shall not apply to the appointment
(5) To establish policies and guidelines and compensation of any such
for employment on the basis subordinate official or employee;
of merit, technical competence
and moral character, and, upon (5) For cause, to remove, suspend, or
the recommendation of the otherwise discipline any subordinate
Administrator to organize or official or employee;
reorganize NEA’s staffing structure,
to fix the salaries of personnel and to (6) To prepare an annual report on the
define their powers and duties. activities of the NEA at the close
of each fiscal year and to submit
(b) The management of NEA shall be vested a copy thereof to the President of
in the Administrator, who shall be a the Philippines and when it comes
person of known integrity, competence into existence, the Prime Minister
and experience in technical and executive and the appropriate committee of,
fields related to the purposes of this and as determined by, the National
Decree. He shall be appointed by the Assembly; and
President of the Philippines and shall not
be removed except for cause. (7) To exercise such other powers and
duties as may be vested in him by the
The Administrator shall have the Board of Administrators.
following powers and duties:
In case of absence or disability of the
(1) To execute and administer the Administrator, he shall designate any of
policies, plans and program, and the Deputy Administrators who shall act
the rules and regulations, approved in his place.
or promulgated by the Board of
Administrators; (c) The Auditor General shall be ex-officio
Auditor of the NEA. The provisions of
(2) To submit for the consideration of Section 584 of the Revised Administrative
the Board of Administrators such Code, as amended by Republic Acts
policies, plans and programs as he Numbered 2266 and 2716, shall apply to
deems necessary to carry out the the Office of the Representative of the
provisions and purposes of this Auditor General in the NEA.
Decree;
SECTION 6. Capital Stock. – The authorized
(3) To direct and supervise the operation capital stock of NEA is One Billion Pesos (P 1B)
and internal administration of divided into ten (10) million shares having a
the NEA and, for this purpose, to par value of One Hundred (P 100.00) Pesos
delegate some or any of his powers each, which shares are not to be transferred,
and duties to subordinate officials of negotiated, pledged, mortgaged, or otherwise
the NEA;
4 ELECTRIC POWER INDUSTRY
VOLUME 559
given as security for the payment of any into existence, from time to time as the
obligation. The sum of fifty million pesos (P financial needs of the NEA shall require
50M) of the capital stock has been subscribed until the authorized capital stock is fully
and paid wholly by the government of the paid-up.
Philippines in accordance with the provisions
of Republic Act Numbered Twenty-seven SECTION 7. Loan Standards. – In making
hundred seventeen, and Republic Act a loan authorized in Section 4, the Board
Numbered Sixty hundred thirty-eight. of Administrators is hereby authorized,
empowered and directed:
The remaining Nine Hundred Fifty Million
pesos (P 950 M) shall be wholly subscribed by (a) Before making such loan, to determine
the government of the Philippines and shall and certify that (1) the project or projects
be paid as follows: being financed thereby are financially
feasible for the purpose of, and will result
(a) The sum of One Hundred Ninety Five in, area coverage in the area or areas to
Million Pesos (P195 M) worth of goods be affected thereby; (2) funds are or will
and services from Japanese Reparations be available for the total advance of such
for the eighteenth, nineteenth and loans to the borrower on the schedule
twentieth year schedule, which is hereby contemplated by the loan agreement; and
allocated to NEA; (3) in the NEA’s judgment and security for
such loan is reasonably adequate and the
(b) The sum of Ten Million Pesos (P 10 M) principal of and interest upon such loan
for the fiscal year 1973 and the same will be repaid on schedule and within the
amount each year for the next two fiscal time agreed;
years making a total sum of thirty million
pesos (P 30 M) representing proceeds of (b) To require that such loan be self-
the sale of reparation goods, which are liquidating within a term to be fixed by
hereby allocated to NEA; the NEA;

(c) The sum of Fifty Three Million Five (c) To impose upon the loan principal an
Hundred Thousand Pesos (P53.5 M) for interest charge to be fixed by the NEA;
the fiscal year 1973 and the same amount
each year for the next nine (9) fiscal years (d) To fix the schedule for repayment of the
from the general revenue, which are principal of and the interest upon such
hereby appropriated; loan in installments recurring not more
than every quarter, which installments
(d) The sum of One Hundred Thirty Million may be in unequal amounts and larger in
Pesos (P130 M) representing fund or the later years of the loan term than in
physical assets which NEDA-FS may make the earlier years;
available to the NEA for loan purposes;
(e) To require in the loan agreement that
(e) The sum of Sixty Million Pesos (P60 M) the borrower’s rates, charges, rules and
representing proceeds corresponding to regulations, policies and all other terms
the share of the National Government in and conditions affecting its extension and
all franchise taxes paid by electric service furnishing of service shall be such as to
entities; and assure achievement of the loan purposes,
and that the same shall be filed with and
(f) Such sums as may be appropriated for such purpose approved by the Board
and/or allocated by the President or of Administrators before being put into
the National Assembly, when it comes effect or charged by the borrower; and
(f) Subject to the foregoing, to establish and the Secretary of Finance. The interest
require compliance with such procedures, may be payable quarterly, semi-
rules and regulations as the Board of annually or annually, as determined
Administrators may determine to be by the Secretary of Finance in
necessary or appropriate to assure that consultation with the Monetary
the purposes of such loan will be timely Board of the Central Bank of the
achieved and that the loan agreement Philippines before date of issuance,
and the provisions of this Decree will be and both the principal and interest
complied with. shall be payable in legal tender of the
Philippines.
SECTION 8. Contracting Indebtedness:
Conditions, Privileges, Exemptions, Sinking (2) The bonds or other evidences of
Fund, Guarantees. – Whenever the Board of indebtedness shall be exempt from
Administrators determines that to accomplish the payment of all taxes by the
the purposes of Chapter II of this Decree it is Republic of the Philippines, or by any
necessary to contract indebtedness, it shall authority, branch, division, political
by a resolution, adopted by the affirmative subdivision thereof, which facts
votes, of at least three members, to declare shall be stated upon their face; and
and authorize the NEA’s execution or issuance they shall be receivable as security
of, and establish the terms and conditions to in any transaction with the National
be contained in, such bonds, loan agreements Government or any of its branches,
or other evidences of indebtedness necessary subdivisions, instrumentalities and
therefor. Such resolution shall become valid its owned or controlled corporations
and effective upon approval by the President in which a security is required.
of the Philippines upon recommendation of
the Secretary of Finance. (3) The sinking fund shall be established
by the National Electrification
(a) With respect to domestic indebtedness Administration in such manner
to be incurred by the NEA, the terms and that the total annual contributions
conditions to be contained in such bonds thereto, accrued at such rate of
or other evidences of indebtedness, and interest as may be determined by the
other conditions, privileges, exemptions Secretary of Finance in consultation
and guarantees attaching thereto, shall with the Monetary Board, shall be
include the following: sufficient to redeem at maturity the
bonds issued under this subsection.
(1) Such bonds or other evidences of The sinking fund shall be under the
indebtedness (a) shall be in registered custody of the Central Bank of the
form and transferable at the Central Philippines, which shall invest the
Bank of the Philippines; (b) shall not same, subject to the approval of
be sold at less than par; (c) shall be the Board of Administrators and the
payable ten years or more from date Secretary of Finance in consultation
of issue, as may be determined by with the Monetary Board: Provided,
the Secretary of Finance before their That the proceeds thereof shall
issuance, but shall be redeemable, accrue to the NEA.
upon the election of the Board of
Administrators, after five years from (4) The Republic of the Philippines
such date of issue; and (d) shall hereby guarantees the payment by
bear interest at an annual rate to be the NEA of both the principal and
determined before their issuance by the interest of the bonds or other

evidences of indebtedness, and the President is authorized to guarantee
shall pay such principal and interest under R.A. 6142, and also to guarantee
in case the NEA fails to do so; and the performance of all or any of the
there are hereby appropriated obligations undertaken by the NEA in the
out of the general funds in the territory of the Republic of the Philippines
National Treasury not otherwise pursuant to loan agreements entered
appropriated the sums necessary to into pursuant to this sub-paragraph (b).
make the payments so guaranteed; Any indebtedness contracted under this
Provided, That the sums so paid sub-paragraph (b) and the payment of
by the Republic of the Philippines the principal thereof and of any interest
shall be refunded by the NEA; and or other charges thereon, as well as the
Provided, further, That the NEA, to importation of machinery, equipment,
assure such refunding, shall establish materials, supplies and service by the
such reserves or sinking funds and NEA, paid from the proceeds of any
comply with such other restrictions such contracted indebtedness, shall also
and conditions as the Secretary of be exempt from all direct and indirect
Finance may prescribe and establish taxes, fees, imposts, other charges and
for that purpose. restrictions, including import restrictions,
by the Republic of the Philippines, or by
(b) With respect to foreign indebtedness any authority, branch, division or political
to be incurred by the NEA, such may subdivision thereof.
be contracted, in the form of loans,
credits, convertible foreign currencies, SECTION 9. Authority to Extend Loans and
or other forms of indebtedness, from Release or Subordinate Securities. – Whenever
foreign governments or any international in its judgments such is necessary or desirable
financial institution or fund source, to achieve the purposes of this Decree, and
including foreign private lenders. The particularly if such is necessary to make
total outstanding amount of such or keep a project operationally viable, the
indebtedness, exclusive of interest, shall Board of Administrators is hereby authorized
not exceed five hundred million United and empowered (a) by agreement with the
States dollars (U.S. $ 500 M) or the borrower, to extend the time of payment of
equivalent thereof in other currencies. principal or interest, or both, beyond the loan
The President of the Philippines, by agreement term of any loan made by the NEA
himself or through his duly authorized under this Decree, or to defer, for not in excess
representative, is hereby authorized of seven years, the time when the repayment
to negotiate and to so contract with schedule for principal or interest, or both,
foreign governments or any international shall begin, or to reschedule payments of
financial institution or fund source in principal or interest, or both, or when more
the name and on behalf of the NEA; of the foregoing is sufficient, to compromise
and is further authorized to guarantee, any amount owing by a borrower to the NEA
absolutely and unconditionally, as primary subject to provision of existing laws; and
obligor and not merely as a surety, in (b) upon the NEA’s determination that such
the name and on behalf of the Republic is necessary or desirable for the purpose
of the Philippines, the repayment of of enabling a borrower to accomplish the
any indebtedness thereby contracted purposes for which it has already received an
and the payment thereon of any due NEA loan and that such will not result in any
interest charge, up to the limited amount diminution of the security of, or of the ability
authorized by the foregoing, which shall of the borrower to repay, any outstanding
be over and above the amounts which indebtedness of the borrower below the

level of such security and ability were such properties; (2) pay the purchase
additional borrowings from another lender price thereof and any costs and expenses
not undertaken, to release any after-acquired incurred in connection therewith out of
property clause contained in any lien the the revolving fund; (3) accept title to such
NEA holds on a borrower’s properties to, or properties in the name of the Republic of
to share any such lien on a co-equal basis in the Philippines; and (4) even prior to the
proportion to their respective loans with, or institution of foreclosure proceedings,
to subordinate any such lien in favor of, any operate or lease such properties for
other lender of funds to a public service entity such period, and in such manner as
or to the NEA for relending to public service may be deemed necessary or advisable
entities for the purposes for which loans are to protect the investment therein,
authorized under this Decree. including the improvement, maintenance
and rehabilitation of systems to be
SECTION 10. Enforcement Powers. – If any foreclosed, but the NEA shall, within five
public service entity which has borrowed years after acquiring such properties in
funds from the NEA, or from any other foreclosure proceedings, sell the same
lender with the NEA’s lawfully required prior for such consideration as it determines
approval, shall default in its principal or to be reasonable and upon such terms
interest payments, or shall fail, after notice and conditions as it determines most
from the NEA, to comply with any other conducive to the achievement of the
term or condition of the loan agreement or purposes of this Decree; or
of any rule or regulation promulgated by the
NEA in administering the provisions of this (e) Take any other remedial measure for
Decree, the Board of Administrators is hereby which the loan agreements may provide.
authorized and empowered in its discretion
to do any or any combination of the following: In addition to the foregoing, the Board of
Administrators may, at its own instance and
(a) Refuse to make, or give my lawfully in the name of the NEA, petition any court
required approval to, any new loan to the having jurisdiction for such purpose or any
borrower; administrative agency possessing regulatory
powers for such purpose (including the Board
(b) Withhold without limitation the NEA’s of Power and Waterworks) to issue such
advancement, or withhold its approval order and afford such lawful relief as may be
for any other lender with respect to which necessary.
the NEA has such approving power to
make advancement, of funds pursuant to No borrower shall, without the approval
any loan already made to the borrower; of the Board of Administrators and of any
other lender holding or sharing a lien on
(c) Withhold any technical or professional such borrower’s properties, sell or dispose
assistance otherwise being furnished or of the property, rights, franchises, permits or
that might be furnished to the borrower; any other assets acquired and/or mortgaged
pursuant to the provisions of this Decree until
(d) Foreclose any mortgage or deed of all outstanding indebtedness to the NEA and
trust or other security held by the NEA any other such lender, including all interest
on the properties of such borrower, in owing thereon, shall have been repaid:
connection with which the NEA, may, Provided, That the NEA may by appropriate
subject to any superior or co-equal rights rule or regulation grant general permission to
in such lien held by any other lender; (1) borrowers to dispose of incidental properties
bid for and purchase or otherwise acquire (excluding real property), rights, franchises,

permits or other assets no longer deemed the provisions of this subsection shall be
necessary or useful in conducting the punished by a fine of not less than One
borrower’s operations. Thousand Pesos (P 1,000.00) nor more
than Five Thousand (P 5,000.00) Pesos,
No cooperative shall borrow money from any or imprisonment for not less than one
source without the Board of Administrator’s year nor more than five years, or both.
prior approval: Provided, That the Board
of Administrators may, by appropriate rule (c) No loan shall be granted by the NEA to
or regulation, grant general permission to any person related to any member of
cooperatives to secure short-term loans the Board of Administrators or to the
not requiring the encumbering of their real Administrator within the third degree
properties or of a substantial portion of their of consanguinity or affinity, or to any
other properties or assets. corporation, partnership, or company
wherein any member of the Board of
SECTION 11. Execution of Public Works Acts. Administrators or the Administrator
– The NEA shall execute all electrification is a shareholder: Provided, That the
projects that may be authorized in any Public foregoing prohibition shall not apply
Works Acts; and for this purpose it may call to a cooperative of which any member
for assistance and cooperation consistently of the Board of Administrators or the
with Section 4 (j). Administrator or any such relative is
a member. Violation by any member
SECTION 12. Conflict of Interest. – of the Board of Administrators or
the Administrator of the provisions
(a) No member, officer, attorney, agent or of this subsection is sufficient cause
employee of the NEA shall in any manner, for this removal by the President of
directly or indirectly, participate in the the Philippines; and the violator shall
determination of any question affecting furthermore be punished as provided in
any public service entity or other entity subsection (b).
in which he is directly or indirectly
interested or any person to whom he is (d) No fee, commission, gift, or charge of any
related within the third degree of affinity kind shall be exacted, demanded, or paid
or consanguinity. Any person violating for obtaining loans from the NEA. Any
the provisions of this subsection shall officer, employee or agent of the NEA
be removed from office and shall upon or the government exacting, demanding
conviction be punished by a fine not to or receiving any fee, commission, gift or
exceed Ten Thousand (P 10,000.00) Pesos charge of any kind for service in obtaining
or imprisonment not to exceed five years, a loan shall be punished by a fine of not
or both. less than one thousand nor more than
three thousand pesos, or imprisonment
(b) No officer or employee of the NEA or any for not less than one year nor more than
government official who may exercise three years, or both.
executive or supervisory, authority over
the NEA, either directly or indirectly, for (e) Any person who, for the purpose of
himself or as the representative or agent obtaining, renewing, or increasing a loan
of others, shall become a guarantor, or the extension of the period thereof,
endorser, surety for loans from the NEA on his own or another’s behalf, shall give
to others, or in any manner be an obligor any false information or cause through
for money borrowed from the NEA. Any his intrigue or machination the existence
such officer or employee who violates and production of any false information

with regard to the identity, situation, Administrator, the Director General of the
productivity or value of security, or with NEDA, the Chairman of the Board of Power
regard to a point which might affect the and Waterworks, a representative of electric
granting or denial of the loan, whether cooperatives to be chosen by a national
the latter has been consummated or not, association of electric cooperatives, and a
and any officer or employee of the NEA representative of the private sector.
who through connivance shall allow by
action or omission such false information The Council shall have a Secretariat to
to pass unnoticed, thereby causing be headed by an Executive Secretary and
damage to the NEA or exposing the latter staffed by such number of personnel as may
to the danger of suffering such damage, be determined by the Council. In order to
shall be punished by a fine of not less augment the expertise necessary in the
than the amount of the loan obtained performance of its functions, the council may
or applied for nor more than three times secure the detail of personnel, either on a part-
such amount, or imprisonment for not time or full-time basis, as well as other forms
less than three months nor more than of assistance from other government offices
three years, or both. and agencies, including government- owned
or controlled corporations. The qualifications
(f) Any officer or employee of the NEA who and compensation of the personnel of the
violates, or causes or permits another Secretariat shall be determined by the
person to violate, and any other person Council, but their appointments shall be
who violates or aids or abets the violation made by the Chairman.
of, any provision of this Decree not
specifically punishable in the preceding The salaries, expenses, operating expenses
subsections shall be punished by a fine and such other necessary financial outlays
not exceeding Two Thousand (P 2,000.00) for PDC shall be provided for from a special
Pesos, or imprisonment not exceeding annual assessment to be determined by the
one year, or both. Chairman of PDC and paid by the NEA and
NPC.
SECTION 13. Supervision over NEA; Power
Development Council. – The NEA shall be The Council shall adopt an integrated plan
under the supervision of the Office of the of electrification and power development,
President of the Philippines. All orders, coordinate the activities and operations of
rules and regulations promulgated, and all all sectors involved in electrification, and
appointments made by the NEA as well as recommend such policies and measures to
transactions subject to the authority and the proper authorities and parties concerned
jurisdiction of the NEA involving more than as it may deem necessary to achieve the
Five Hundred Thousand (P 500,000.00) Pesos total electrification objective declared in this
shall be subject to the approval of the Office Decree.
of the President of the Philippines.
SECTION 14. Exemption From All Taxes,
In order to achieve coordination and Duties, Fees, Imposts and Others Charges
cooperation among different agencies and by Government and Governmental
sectors having to do with electrification and Instrumentalities. – The NEA shall devote
power development, there is hereby created a all its returns from its capital investments as
Power Development Council whose Chairman well as excess revenues from its operation to
shall be a person or official designated by the attain its objectives. To enable the NEA to
President of the Philippines, and its members pay its indebtedness and obligations and in
shall be the manager of the NPC, the NEA furtherance and effective implementation of

the policy enunciated in this Decree, the NEA Philippine Non-Agricultural Cooperative Act
is hereby declared exempt: may as hereinafter provided be converted,
under this Decree for the purpose of
(a) From the payment of all taxes, supplying, and of promoting and encouraging
duties, fees, imposts, charges, costs the fullest use of, service on an area coverage
and restrictions to the Republic of basis at the lowest cost consistent with sound
the Philippines, its provinces, cities, economy and the prudent management of
municipalities, and other government the business of such corporations.
agencies and instrumentalities, including
the taxes, duties, fees, imposts and other SECTION 16. Powers. – A cooperative is
charges provided for under the Tariff hereby vested with all powers necessary
and Customs Code of the Philippines, or convenient for the accomplishment of
R.A. 1973, as amended by Presidential its corporate purpose and capable of being
Decree No. 34 dated October 27, 1972, delegated by the President or the National
and Presidential decree No. 69 dated Assembly when it comes into existence; and
November 24, 1972, and filing and no enumeration of particular powers hereby
service fees and other charges or costs in granted shall be construed to impair any
any court or administrative proceedings general grant of power herein contained, nor
in which it may be a party; to limit any such grant to a power or powers
of the same class as those so enumerated.
(b) From all income taxes, franchise taxes Such powers shall include but not be limited
and realty taxes to be paid to the National to, the power:
Government, its provinces, cities,
municipalities and other government (a) To sue and be sued in its corporate name;
agencies and instrumentalities;
(b) To have existence for a period of fifty
(c) From all import duties, compensating years;
taxes and advance sales tax, wharfage
fees on import of foreign goods required (c) To adopt a corporate seal and alter the
for its operations and projects; and same;

(d) From all taxes, duties, fees, imposts, (d) To generate, manufacture, purchase,
and all other charges imposed directly acquire, accumulate and transmit electric
or indirectly by the Republic of the power and energy, and to distribute, sell,
Philippines, its provinces, cities, supply and dispose of electric energy
municipalities and other government to persons who are its members and to
agencies and instrumentalities, on all other persons not in excess of ten per
petroleum products used by the NEA in centum of the number of its members:
the generation, transmission, utilization Provided, however, That a cooperative
and sale of electric power. may furnish electric cold storage or
processing plant service to non-members
CHAPTER III without limitation: and Provided, further,
Electric Cooperatives That a cooperative which acquires existing
electric facilities may continue service
SECTION 15. Organization and Purpose. from such facilities without requiring
– Cooperative non-stock, non-profit such persons to become members, but
membership corporations may be organized, such persons may become members
and electric cooperative corporations upon such terms as may be prescribed in
heretofore formed or registered under the the cooperative’s by-laws;

(e) To assist persons to whom service is or owned or after-acquired real or personal
will be supplied by the cooperative in property, assets, franchises, or revenues:
wiring their premises and in acquiring Provided, That any borrowing from, or
and installing electrically powered- any encumbering of its properties as
appliances, equipment, fixtures and security in favor of, any lending sources
machinery for agricultural, commercial other than the NEA shall require the prior
and industrial uses by the financing approval of the NEA Administrator and his
thereof or otherwise, and in connection certification that such is in furtherance
therewith to wire, or cause to be wired, of the purposes and is consistent with
such premises, and to purchase, acquire, the provisions of this Decree, and that
lease as lessor or lessee, sell, distribute, such borrowing and/or encumbering
install and repair such electrically- will not diminish the security of, or of
powered appliances, equipment, fixtures the ability of the cooperative to repay,
and machinery; any then-outstanding indebtedness of
the cooperative to the NEA or any other
(f) To assist persons to whom service is or lending source below the level of such
will be supplied by the cooperative in security and ability were such additional
constructing, equipping, maintaining borrowing not being undertaken;
and operating electric cold storage
or processing plants, by the financing (j) To construct, maintain and operate electric
thereof or otherwise; transmission and distribution lines along,
upon, under and across publicly owned
(g) To construct, purchase, lease as lessee, lands and public thoroughfares, including,
or otherwise acquire, and to equip, without limitation, all roads, highways,
maintain, and operate, and to sell, assign, streets, alleys, bridges and causeways:
convey, lease as lessor, mortgage, pledge, Provided, That such shall not prevent or
or otherwise dispose of or encumber, unduly impair the primary public uses to
electric transmission and distribution which such lands and thoroughfares are
lines or systems, electric generating otherwise devoted;
plants, lands, buildings, structures,
dams, plants, and equipment, and any (k) To exercise the power of eminent
other real or personal property, tangible domain in the manner provided by law
or intangible, which shall be deemed for the exercise of such power by other
necessary, convenient or appropriate to corporations constructing or operating
accomplish the purpose for which the electric generating plants and electric
cooperative is organized; transmission and distribution lines or
systems;
(h) To purchase, lease as lessee, or otherwise
acquire, and to use, and exercise and to (l) To become a member of other
sell, assign, convey, mortgage, pledge cooperatives or corporations or to own
or otherwise dispose of or encumber stock therein, provided such cooperatives
franchises, rights, privileges, licenses and to corporations are engaged in a business
easements; or activities germane to or having a
reasonable relation to the business or
(i) To borrow money and otherwise contract activities of the cooperative, its members,
indebtedness, and to issue notes, bonds, its directors, or its employees;
and other evidence of indebtedness, and
to secure payment thereof by mortgage, (m) To conduct its business and exercise its
pledge, or deed of trust of, or any other powers within or without the province or
encumbrance upon, any or all of its then provinces in which its supplies service;
(n) To adopt, amend and repeal by-laws; and acknowledged by at least two of the
incorporators (or on their behalf, if they
(o) To fix, maintain, implement and collect are cooperatives). It shall not be necessary
rates, fees, rents, tolls, and other charges to recite in the articles of incorporation
and terms and conditions for service: the purpose for which the cooperative is
Provided, That by appropriate rules organized or any of its corporate powers.
and regulations the NEA shall require
that such shall be in furtherance of the SECTION 20. By-Laws. – Unless reserved to
purposes and in conformity with the the members in the articles of incorporation,
provisions of this Decree; and the power to adopt and thereafter to amend
or repeal by-laws shall vest in and be exercised
(p) To do and perform any other acts and by the board, the affirmative votes of a clear
things, and to have and exercise any majority of all directors in office, after due
other powers which may be necessary, notice to all directors, being requisite for such
convenient or appropriate to accomplish purpose. The by-laws shall set forth the basic
the purpose for which the cooperative is rights and duties of members and directors
organized. and may contain any other provision for the
regulation and management of the affairs
SECTION 17. Name. – The name of a of the cooperative not inconsistent with its
cooperative shall include the words “Electric” articles of incorporation or this Decree.
and “Cooperative”, and the abbreviation
“Inc.”. The name of a cooperative organized SECTION 21. Members. – Each incorporator
under this Decree shall be distinct from of a cooperative shall be a member thereof,
the name of any other cooperative already but no other person may become a member
organized or converted under this Decree. thereof unless such other person agrees to
The foregoing requirement shall not apply to use services furnished by the cooperative
any cooperative which becomes subject to when made available by it. Membership in a
this Decree by complying with the provisions cooperative shall not be transferable, except
of Section 31. as provided in the by-laws. The by-laws
may prescribe additional qualifications and
SECTION 18. Incorporators. – Five or more limitations with respect to membership.
persons, including cooperatives, may organize
a cooperative in the manner hereinafter The provision of any law or regulation to
provided. the contrary notwithstanding, an officer
or employee of the government shall be
SECTION 19. Articles of Incorporation. – The eligible for membership in any cooperative
articles of incorporation of a cooperative if he meets the qualifications therefor
shall recite that they are executed pursuant and he shall not be precluded from being
to this Decree and shall state: (a) the name elected to or holding any position therein,
of the cooperative; (b) the address of its or from receiving such compensation or fee
principal office; (c) the names and addresses in relation thereto as may be authorized by
of the incorporators; and (d) the names and the by-laws: Provided, That elective officers
addresses of its original directors, who shall of the government, except barrio captains
constitute the board until the first election of and councilors, shall be ineligible to become
the board by the members; and may contain officers and/or directors of any cooperative.
any other provisions not inconsistent with For this purpose, individual permission need
this Decree that are deemed necessary or not be obtained from the proper head of
advisable for the conduct of its business. Such office: Provided, however, That this authority
articles shall be signed by each incorporator shall not be construed as a permit to the
government officer or employee concerned
to devote official time to the affairs of the the meeting from time to time without
cooperative. further notice.

SECTION 22. Meetings of Members. – (e) Each member shall be entitled to one
vote of each matter submitted to a vote
(a) An annual meeting of the members of at a meeting of the members. Voting
a cooperative shall be held at such time shall be non-cumulative and in person,
and place as shall be provided in the by- but, if the by-laws so provide, may also
laws. be by mail or by proxy.

(b) Special meetings of the members may be SECTION 23. Waiver of Notice. – Any person
called by the President, by the board, by entitled to notice of a meeting may waive
any three directors or, unless a smaller notice in writing either before or after such
number or percentage be prescribed meeting; however, his attendance shall
in the by-laws, by not less than 100 constitute a waiver of notice of such meeting,
members or five per centum of all unless such person participates therein solely
members, whichever shall be the lesser. to object to the transaction of any business
because the meeting has not been legally
(c) Except as otherwise provided in this called or convened.
Decree and unless otherwise provided
for in the by-laws, written or printed SECTION 24. Board of Directors. –
notice stating the time and place of each
meeting of the members and, in the (a) The business of a cooperative shall be
case of special meetings, the purpose managed by a board of not less than
or purposes for which the meeting is five directors, each of whom shall be a
called, shall be given to each member, member of the cooperative or of another
either personally or by mail, not less which is a member thereof. The by-laws
than ten days nor more than twenty- five shall prescribe the number of directors,
days before the date of the meetings. If their qualifications other than those
mailed, such notice shall be deemed to prescribed in this Decree, the manner
be given when deposited in the Philippine of holding meetings of the board and of
mail with postage prepaid, addressed to electing successors to directors who shall
the member at his address as it appears resign, die or otherwise be incapable of
on the records of the cooperative. acting. The by-laws may also provide
for the removal of directors from office
(d) Unless the by-laws prescribe the presence and for the election of their successors.
of a greater or lesser percentage or Directors shall not receive any salaries
number of the members for such for their services as such and, except in
purpose, a quorum for the transaction of emergencies, shall not receive any salaries
business at all meetings of the members for their services to the cooperative
of a cooperative having not more than in any other capacity without the
1,000 members shall be five per centum approval of the members. The by-laws
of all members, present in person, and may, however, prescribe a fixed fee for
of a cooperative having more than 1,000 attendance at each meeting of the board
members shall be five per centum of all and may provide for reimbursement of
members or 100, whichever is lesser, actual expenses of such attendance and
present in person. If less than a quorum of any other actual expenses incurred
is present at any meeting, a majority of in the due performance of a director’s
those present in person may adjourn duties.

(b) The directors of a cooperative named When a person holding any such office ceases
in any articles of incorporation, to be a director, he shall ipso facto cease to
consolidation, merger or conversion hold such office. The offices of secretary
shall hold office until the next annual and of treasurer may be held by the same
meeting of the members and until their person. The board may also elect or appoint
successors are elected and qualify. At such other officers, agent, or employees as
each annual meeting of, in case of failure it deems necessary or advisable and shall
to hold the annual meeting as specified prescribe their powers and duties. Any
in the by-laws, at a special meeting called officer may be removed from office and his
for that purpose, the members shall elect successor elected in the manner prescribed in
directors to hold office until the next the by-laws.
annual meeting of the members, except
as otherwise provided in this Decree. SECTION 27. Amendment of Articles of
Each director shall hold office for the Incorporation. – A cooperative may amend
term for which he is elected and until his its articles of incorporation by complying
successor is elected and qualifies. with the following requirements: Provided,
however, That a change of location of principal
(c) Instead of electing all the directors office may be effected in the manner set forth
annually, the by-laws may provide that in Section 28. The proposed amendment shall
each year half of them or one-third of be presented to a meeting of the members,
them, or a number as near thereto as the notice of which shall set forth or have
possible, shall be elected on a staggered attached thereto the proposed amendment
term basis to serve two-year terms or or an accurate summary thereof. If the
three-year terms, as the case may be. proposed amendment, with any changes, is
approved by the affirmative vote of not less
(d) A majority of the board of directors in than two-thirds of the total votes cast thereon
office shall constitute a quorum. at such meeting, articles of amendment shall
be executed and acknowledged on behalf
(e) The board shall exercise all of the powers of the cooperative by its president or vice-
of a cooperative not conferred upon or president and its seal shall be affixed thereto
reserved to the members by this Decree and attested by its secretary. The articles
or by its articles of incorporation or by- of amendment shall recite that they are
laws. executed pursuant to this Decree and shall
state: (1) the name of the cooperative; (2)
SECTION 25. Districts. – The by-laws may the address of its principal office; and (3) the
provide for the division of the territory amendment to its articles of incorporation.
served or to be served by a cooperative The president or vice-president executing
into two or more districts for any purpose, such articles of amendment shall make the
including, without limitation, the nomination annex thereto an affidavit stating that the
and election of directors. The by-laws shall provisions of this section with respect to the
prescribe the boundaries of the districts, or amendment set forth in such articles were
the manner of establishing such boundaries, duly complied with.
the manner of changing such boundaries,
and the manner in which such districts shall SECTION 28. Change of Location of
function. Principal Office. – A cooperative may, upon
authorization of its board or members,
SECTION 26. Officers. – The officers of a change the location of its principal office by
cooperative shall consist of a president, vice- filing a certificate reciting such change of
president, secretary and treasurer, who shall principal office, executed and acknowledged
be elected annually by and from the board. by its president or vice-president under its
seal attested by its secretary, in the place or shall become members of the new
provided for in Section 34. cooperative; and may contain any other
provisions not inconsistent with this
SECTION 29. Consolidation. – Any two Decree that are deemed necessary or
or more cooperatives (each of which is advisable for the conduct of the business
hereinafter designated a “consolidating of the new cooperative. The president
cooperative”) may consolidate into a new or vice-president of each consolidating
cooperative (hereinafter designated the cooperative executing such articles of
“new cooperative”), by complying with the consolidation shall make and annex
following requirements: thereto an affidavit stating that the
provisions of this section with respect to
(a) The proposition for the consolidation such articles were duly complied with by
of the consolidating cooperatives into such cooperative.
the new cooperative and proposed
articles of consolidation to give effect SECTION 30. Merger. – Any one or more
thereto shall be submitted to a meeting cooperatives (each of which is hereinafter
of the members of each consolidating designated a “merging cooperative”) may
cooperative, the notice of which shall merge with one or more other cooperatives by
have attached thereto a copy of the complying with the following requirements:
proposed articles of consolidation or an
accurate summary thereof. (a) The proposition for the merger of the
merging cooperatives into the surviving
(b) If the proposed consolidation and the cooperative and proposed articles of
proposed articles of consolidation, with merger to give effect thereto shall be
any amendments, are approved by the submitted to a meeting of the members
affirmative vote of not less than two- of each merging cooperative and of the
thirds of the total voted cast thereon by surviving cooperative, the notice of this
each consolidating cooperatives voting shall have attached thereto a copy of
thereon at each such meeting, articles of the proposed articles of merger or an
consolidation in the form approved shall accurate summary thereof.
be executed and acknowledged on behalf
of each consolidating cooperative by its (b) If the proposed merger and the proposed
president or vice-president and its seal articles of merger, with any amendments,
shall be affixed thereto and attested by are approved by the affirmative vote of
its secretary. The articles of consolidation not less than two-thirds of the total votes
shall recite that they are executed cast thereon by each cooperative voting
pursuant to this decree and shall state: thereon at each such meeting, articles
(1) the name of each consolidating of merger in the form approved shall be
cooperative and the address of its executed and acknowledged on behalf of
principal office; (2) the name of the each such cooperative by its president
new cooperative and the address of its or vice-president and its seal affixed
principal office; (3) a statement that thereto and attested by its secretary. The
each consolidating cooperative agrees articles of merger shall recite that they
to the consolidation; (4) the names are executed pursuant to this Decree
and addresses of the directors of the and shall state: (1) the name of each
new cooperative; and (5) the terms and merging cooperative and the address of
conditions of the consolidation and the its principal office; (2) the name of the
mode of carrying the same into effect, surviving cooperative and the address
including the manner in which members of its principal office; (3) a statement
of the consolidating cooperatives may that each merging cooperative and
the surviving cooperative agree to the (c) The new or surviving cooperative shall be
merger (4) the names and addresses of responsible and liable for all liabilities and
the directors of the surviving cooperative, obligations of each of the consolidating
and (5) the terms and conditions of the or merging cooperatives, and any claim
merger and the mode of carrying the existing or action or proceeding pending
same into effect, including the manner by or against any of the consolidation
in which members of the merging or merger had not taken place, but the
cooperatives may or shall become new or surviving cooperatives shall be
members of the surviving cooperative substituted in its place; and
and may contain any other provisions
not inconsistent with this Decree that are (d) Neither the rights of creditors nor any
deemed necessary or advisable for the liens upon the property of any such
conduct of the business of the surviving cooperatives shall be impaired by such
cooperative. The president or vice- consolidation or merger.
president or each cooperative executing
such articles of merger shall make an SECTION 32. Conversion of Existing
annex thereto an affidavit stating that the Corporation. – Any corporation heretofore
provisions of this section with respect to organized or registered under the Philippine
such articles were duly complied with by Non-Agricultural Cooperative Act and
such cooperative. supplying or having the corporate power to
supply electric energy may convert itself into
SECTION 31. Effect of Consolidation or a cooperative under this Decree by complying
Merger. – with the following requirements, and shall
thereupon become the subject to this Decree
(a) In the case of consolidation, the existence with the same effect as if originally organized
of the consolidating cooperative shall hereunder:
cease and the articles of consolidation
shall be deemed to be the articles or (a) The proposition for the conversion of
incorporation of the new cooperative; such corporation and proposed articles of
and in the case of merger, the separate conversion to give effect thereto shall be
existence of the merging cooperatives submitted to a meeting of the members
shall cease and the articles of or stockholders of such corporation,
incorporation of the surviving cooperative the notice of which shall have attached
shall be deemed to be amended to the thereto a copy of the proposed articles
extent, if any, that changes therein are of conversion or an accurate summary
provided for in the articles of merger; thereof.

(b) All rights, privileges, immunities and (b) If the proposition for the conversion and
franchises and all property, real and the proposed articles of conversion, with
personal, including without limitation any amendments, are approved by the
applications for membership, all debts affirmative vote of not less than two-
due on whatever account and all thirds of the total votes cast thereon
other choses in action of each of the by members at such meeting, and/or, if
consolidating or merging cooperatives such corporation is a stock corporation
shall be deemed to be transferred to or has both members and voting
and vested in the new or surviving stockholders, by the affirmative vote of
cooperative without further act or deed; the holders of not less than two-thirds
of those shares of the capital stock of
such corporation represented at such

meeting and voting thereon, articles of seal, attested by its secretary, stating: (1) the
conversion in the form approved shall be name of the cooperative; (2) the address of
executed and acknowledged on behalf its principal office; and (3) that the members
of such corporation by its president or of the cooperative have duly voted that the
vice-president and its seal shall be affixed cooperative be dissolved. Also, an affidavit,
thereto and attested by its secretary. made by its president or vice-president
The articles of conversion shall recite executing the certificate, shall state that the
that they are executed pursuant to this statements in the certificate are true. Upon
Decree and shall state: (1) the name of the filing of the certificate and affidavit as
the corporation and the address of its provided for in Section 34, the cooperative
principal office prior to the conversion shall cease to carry on its business except
into a cooperative; (2) a statement that to the extent necessary for the winding up
such corporation elects to become a thereof, but its corporate existence shall
cooperative, non-profit, membership continue until articles of dissolution shall
corporation subject to this Decree; (3) its have been filed. The board shall immediately
name as a cooperative; (4) the addresses cause notice of the dissolution proceedings
of the principal office of the cooperative; to be mailed to each known creditor of and
and (5) the names and address of claimant against the cooperative and to be
the directors of the cooperative, and published once a week for two successive
(6) the manner in which members weeks in a newspaper of general circulation
or stockholders of such corporation in the territory in which the principal office
may or shall become members of the of the cooperative is located. The board
cooperative; and may contain any other shall wind up and settle the affairs of the
provisions not inconsistent with this cooperative, collect sums owing to it,
Decree that are deemed necessary or liquidate its property and assets, pay an
advisable for the conduct of the business discharge its debts, obligations and liabilities,
of the cooperative. The president or other than those patrons arising by reason
vice-president executing such articles of of their patronage, and do all other things
conversion shall make and annex thereto required to wind up its business; and, after
an affidavit stating that the provisions paying or discharging or adequately providing
of this section were duly complied for the payment or discharge of all its debts,
with in respect to such articles. The obligations and liabilities, other than those to
articles of conversion shall be deemed patrons arising by reason of their patronage,
to be the articles of incorporation of the shall distribute any remaining sums and/
cooperative. or unliquidated assets, first, to patrons for
the pro rata return of all amounts standing
SECTION 33. Dissolution. – A cooperative to their credit by reason of their patronage;
may be dissolved in the following manner: second, to members for the pro rata
The proposition to dissolve shall be submitted repayment of membership fees; and third, to
to the members of the cooperative at any patrons for the amounts of any outstanding
annual or special meetings, the notice of contributions in aid of construction they
which shall set forth such proposition. The have made. Any sums and/or unliquidated
members at any such meeting shall approve, assets then remaining shall be distributed in
by the affirmative vote of not less than a such manner as provided in the cooperative’s
majority of all members of the cooperative, articles of incorporation or by-laws, which
the proposition that the cooperative may provide for distribution of such sums or
be dissolved (hereinafter designated assets on a patronage basis to persons who
the “certificate”) shall be executed and were members in one or more prior years or
acknowledged on behalf of the cooperative for transfer thereof to a new cooperative to
by its president or vice-president under its succeed the one being dissolved. The board
shall thereupon authorize the execution unreasonable prejudice or disadvantage; shall
of articles of dissolution, which shall be not establish or maintain any unreasonable
executed and acknowledged on behalf of difference as to rates or services either as
the cooperative by its president or vice- between localities or as between classes
president, and its seal shall be affixed thereto of service; shall not give, pay or receive any
and attested by its secretary. The articles of rebate or bonus, directly or indirectly, or
dissolution shall recite that they are executed mislead its members in any manner as to
pursuant to this Decree and shall state: (1) rates charged for its services; and shall furnish
the name of the cooperative; (2) the address service on an area coverage basis; Provided,
of its principal office; (3) the date on which That for any extension of service which if
the certificate of election to dissolve was treated on the basis of standard terms and
filed; (4) that there are no actions or suits conditions is so costly as to jeopardize the
pending against the cooperative; (5) that financial feasibility of the cooperative’s entire
all debts, obligations and liabilities of the operation, the cooperative may require such
cooperative have been paid and discharged or contribution in aid of construction, such
that provision to the extent possible has been facilities extension deposit, such guarantee of
made therefor; and (6) that the provisions of minimum usage for a minimum term or such
this section have been duly complied with. other reasonable commitment on the part of
The president or vice-president executing the the person to be served as may be necessary
articles of dissolution shall make the annex and appropriate to remove such jeopardy,
thereto an affidavit stating that the statement but no different in standard rates for use of
made therein are true. service shall be imposed for such purpose.

SECTION 34. Filing of Articles and Certificates. The by-laws of a cooperative or its contracts
– Articles of incorporations, amendment, with members and patrons shall contain such
consolidation, merger, conversion, or reasonable terms and conditions respecting
dissolution and certificates of changes in the membership, the furnishing of service and the
location of principal offices and of elections to disposition of revenues and receipts as may
dissolve, when executed and acknowledged be necessary and appropriate to establish and
and accompanied by such affidavits as maintain its non-profit, cooperative character
may be required by applicable provisions and to ensure compliance with this section.
of this Decree, shall be presented to the No bona fide applicant for membership on
Administrator for filing in the records of his non-member patronage who is able and
office. If he shall find that such conform to willing to satisfy and abide by all such terms
the requirements of this Decree, he shall so and conditions shall be denied arbitrarily,
certify and shall file such in the records of his capriciously or without good cause.
office. Upon such certification and filing, the
incorporation, amendment, consolidation, SECTION 36. Disposition of Property. –
merger, conversion, dissolution or certificate
provided for therein shall be in effect. (a) The board of a cooperative shall have
full power and authority, without
SECTION 35. Non-profit, Non-discriminatory, authorization by the members thereof, to
Area Coverage Operation and Service. – A authorize the execution and delivery of a
cooperative shall be operated on a non-profit mortgage or a deed of trust, or the pledging
basis for the mutual benefit of its members or encumbering otherwise, of any or all
and patrons; shall, as to rates and services of the property, assets, rights, privileges,
make or grant no unreasonable preference licenses, franchises and permits of the
or advantage to any member or patron cooperative, whether acquired or to be
nor subject any member or patron to any acquired, and whenever situated, as well

as the revenues therefrom, all upon such (a) Provided that it operates in conformity
terms and conditions as the board shall with the purposes and provisions of
determine, to secure any borrowing by or this Decree, cooperatives (1) shall be
indebtedness of the cooperative. permanently exempt from paying income
taxes, and (2) for a period ending on
(b) A cooperative may not otherwise December 31; of the thirtieth full calendar
sell, lease or, except by consolidation year after the date of a cooperative’s
or merger, otherwise dispose of the organization or conversion hereunder,
property (other than merchandise and or until it shall become completely free
property which shall represent not in of indebtedness incurred by borrowing,
excess of ten per centum of the value whichever event first occurs, shall be
of the cooperative’s total assets, or exempt from the payment (a) of all
which in the judgment of the board are National Government, local government
not necessary or useful in operating and municipal taxes and fees, including
the cooperative) unless such sale, lease franchise, filing, recordation, license
or, except in the case of consolidation or permit fees or taxes and any fees,
or merger, other disposition is (1) charges, or costs involved in any court
authorized by the affirmative vote of not or administrative proceeding in which
less than a majority of all members of the it may be a party, and (b) of all duties
cooperative and (2) consented by the NEA or imposts on foreign goods acquired
and any other lending source which then for its operations, the period of such
holds a lien on any of the cooperative’s exemption for a new cooperative formed
properties. by consolidation, as provided for in
Section 29, to begin from as of the date
SECTION 37. Non-Liability of Members for of the beginning of such period for the
Debts of Cooperative. – No member shall constituent consolidating cooperative
be liable or responsible for any debts of the which was most recently organized or
cooperative and the property of the members converted under this Decree: Provided,
shall not be subject to execute therefor. That the Board of Administrators shall,
after consultation with the Bureau
SECTION 38. Limitation of Actions. – No of Internal Revenue, promulgate
action or suit may be brought against a rules and regulations for the proper
cooperative, or against any agent, servant implementation of the tax exemptions
or employee thereof, by reason of the provided for in this Decree.
maintenance of electric transmission or
distribution lines, or any related equipment, (b) The National Power Corporation shall,
facilities or machinery, or any real property except with respect to the National
after the expiration of a period of five (5) years Government, give preference in the sale
of continuous maintenance of such lines or of its power and energy to cooperatives,
related equipment facilities or machinery. and shall otherwise provide the maximum
support of and assistance to cooperatives
SECTION 39. Assistance to Cooperatives; of which it is capable, including assistance
Exemption from Taxes, Imposts, Duties, in developing dependable and reliable
Fees; Assistance from the National Power arrangements for their supplies of bulk
Corporation. – Pursuant to the national power, either from itself, or from other
policy declared in Section 2, the Congress sources. In pursuance of the foregoing
hereby finds and declares that the following policy, the National Power Corporation
assistance to cooperative is necessary and shall not, except upon prior written
appropriate: agreement approved by the cooperative’s
board, compete in the sale of power
and energy which without regard to the properties be so located, constructed,
location of the point of delivery thereof, operated and maintained as to be safe to the
will be utilized and consumed within any public and not to unduly interfere with the
area franchised to a cooperative. primary use of streets, roads, alleys and other
public ways, buildings and grounds over, upon
SECTION 40. Exemption from Board of Power or under which they may be built.
and Waterworks and Securities Exchange
Commission. – SECTION 43. Franchising Powers Delegated
to the NEA. – The power hereafter to
(a) Cooperatives shall be exempt from grant and thereafter to repeal, alter or
regulation by the Board of Power and amended new franchises, to repeal, alter
Waterworks. or amend all franchises heretofore granted
by the Congress (or by the President or by
(b) The provisions of the Securities Act shall the National Assembly after it comes into
not apply to any note, bond or other existence), and to repeal, alter or amend
evidence of indebtedness issued by any all franchises heretofore granted by any
cooperative or to any mortgage, deed municipal, city or provincial government,
of trust, indenture or other instrument is hereby delegated to the NEA, whose
executed to secure the same. The Board of Administrators shall, acting as a
provisions of said Act shall not apply to Commission, administer the provisions of this
the issuance of membership certificates Chapter. Provisions of Republic Act 2677 to
or any other evidence of member or the country notwithstanding, no municipality
patron interest by a cooperative. shall hereafter initiate the operation, or after
December 31, 1973, continue any operation
CHAPTER IV heretofore initiated, of any service for sale at
Franchises; Regulation of Cooperatives retail unless it shall first obtain a franchise from
the NEA in accordance with the provisions of
SECTION 41. Applicability. – This Chapter this Chapter. In exercising the powers herein
shall apply only to electric franchises as delegated, the NEA shall at all times seek
defined in Section 3. It shall not be applicable to serve the national objective of the most
to franchises for any other utility service or rapid total electrification of the Philippines
to those separable portions of franchises on an area coverage basis. Without limiting
covering any other type of utility service the generality of the foregoing sentence, the
though such franchises may also cover NEA is hereby authorized, empowered and
electric service. The Board of Administrators directed:
shall hear and determine all questions which
may arise under this Section. (a) Within one hundred eighty days after
the effective date of this Chapter (and
SECTION 42. Repeal of Franchise Powers of periodically thereafter, at least once
Municipal, City and Provincial Governments. annually) to notify and require every
– The powers of municipal, city and provincial person holding a franchise to report to
governments to grant franchises, as provided it, within not less than ninety days after
for in Title 34 of the Philippines Statutes such notice, an accurate description
or in any special law, are hereby repealed: of the geographic area encompassed
Provided, That this section shall not impair or in such franchise, the number of
invalidate any franchise heretofore lawfully households therein receiving adequate
granted by such a government or repeal any and dependable service, the number
other subsiding power of such governments of households therein receiving service
to require that electric facilities and related which is not adequate and dependable,

the number and type of other retail transmission or distribution facilities or
customers therein receiving adequate related facilities with, and through such
and dependable service or service which interconnection to exchange, sell or
is not adequate and dependable, the purchase power and energy with, to or
approximate total number of households from or to transmit power and energy on
therein, the date such franchise was behalf of, any other public service entity
granted and such other information or, if it so requests or consents, the NPC;
and data as the NEA for the purpose of and, if such public service entities (and,
implementing this section may require, if such be the case, the NPC) are unable
and, on the basis of such reports and between or among themselves to agree
otherwise, including complaints: upon such, to establish the manner and
degree, to fix and apportion the financial
(1) to review such franchises to responsibility and sharing of costs, and to
determine whether the holders determine the other terms and conditions
thereof are furnishing service on an of such interconnection, exchange, sale,
area coverage basis or are engaged purchase or transmission: Provided,
in effective measures to furnish such however, That the provisions of Section
service within a reasonable time; 45 to the contrary notwithstanding, the
provisions of this paragraph shall apply
(2) to repeal and cancel any franchise if to industrial plants, factories, mills, mines
the NEA finds that the holder thereof and similar or other power generating
is not then furnishing, and is unable entities in which case they shall qualify
or unwilling within a reasonable time as public service entities for purposes of
to furnish, adequate and dependable Section 4 (f).
service on an area coverage basis
within such area; and SECTION 44. Preference to Cooperatives.
– Whenever two or more public service
(3) to alter and condition such or entities are affected by and have competing
other existing franchises and to or conflicting interests with respect to the
issue new franchises to the end granting, repeal, alteration or conditioning of
of assuring area coverage service the same franchise or franchises, and one or
throughout the Nation as in this more of such entities are cooperatives, the
Decree contemplated: Provided, NEA shall accord preference to a cooperative
That no franchise shall be altered, over any other type of public service entity
conditioned, repealed or cancelled, (and shall prefer one cooperative over
and no franchise shall be granted, another) unless and except to the extent that
without first affording the holder an order in favor of another type of public
thereof, or the contending applicants service entity (or of another cooperative) will,
therefor, if such be the case, and any as found by the NEA, result both earlier and
other interested parties opportunity ultimately in the furnishing and extending of
for hearing; and area coverage service (1) to a greater number
of households, (2) over a larger geographic
(b) Upon determining, after affording area, and (3) on the basis of the same or
opportunity for hearing to all interested lower rates, charges and fees.
parties, that such is necessary or
appropriate to assure or expedite the SECTION 45. Furnishing Service Without
furnishing of service on an area coverage a Franchise Prohibited. – No person shall
basis, to require any public service furnish or extend service to the public
entity to interconnect its generation, within any area for which such person has

not been granted a franchise or after such a incorporation, by-laws, audit reports and
franchise has been repealed and cancelled other internal records, documents, policies
or so conditioned or altered as to prohibit and procedures, as will enable the NEA to be
service therein: Provided, That such service sufficiently informed in exercising its powers
may be continued and extended therein, and authorities: Provided, That no order shall
and the NEA, after affording opportunity for issue finally determining and substantially
hearing to any interested party, may by order affecting any right of any person subject to
require that it be so continued and extended the NEA’s jurisdiction without first affording
until service to the customers of such person such person and any other interested person
is made available by a public service entity opportunity for hearing as a party in the
lawfully authorized to serve therein. hearing proceeding.

SECTION 46. Additional Regulation of SECTION 48. Parties and Intervenors in NEA’s
Cooperatives by the NEA. – In addition to Proceedings. – Public service entities or
the other ways in which cooperatives are any other interested person may invoke the
subject to regulation by the NEA as provided NEA’s exercise of its powers and authorities
in this Decree, the NEA, on its own motion provided for in Section 43, 44, 45, 46 and 47
or upon complaint but only after affording by filing verified applications or complaints
opportunity for hearing to all interested with the NEA, and the NEA, on its own
parties, is empowered to and shall (1) require motion solely, may institute proceedings in
a cooperative to extend or improve service connection with all maters coming under its
upon the NEA’s determination that such jurisdiction as provided for in said sections.
should be done in furtherance of the purposes In any proceeding conducted by the NEA,
of this Decree and that such may reasonably including proceedings to establish NEA
be done without undue impairment of the rules and regulations, all persons having
feasibility of the cooperative’s operation a substantial interest therein shall, upon
and financial condition; and (2) require a petition therefor, be permitted by the NEA
cooperative to cease and correct any practice to intervene as full parties, and the NEA, in
or act which the NEA determines to be in its discretion, may permit persons having an
violation of the provisions of Section 35, and insubstantial interest therein to intervene as
in connection with such authority it may a full party or on such limited basis as the NEA
require a cooperative to file with the NEA, may prescribe.
and to make accessible to any person upon
request therefor, copies of all rates, charges, SECTION 49. NEA Rules and Regulations. –
contract forms, fee or deposit schedules, by- The NEA shall establish appropriate rules and
laws, and service rules and regulations. regulations to carry out the provisions of this
Chapter IV, including rules for the conduct
SECTION 47. Hearings and Investigations. – of NEA investigations, proceedings and
The NEA is empowered to conduct such hearing; and shall timely publish the same
hearings and investigations and to issue such when adopted or amended to the end that
orders as are necessary for it to implement all persons affected thereby shall be given
the provisions of this Chapter, and in reasonable notice thereof.
connection therewith, without necessary
of previous hearing, to require any public SECTION 50. Notice. –
service entity or the officials thereof to
furnish to it such information and data, (a) With respect to any NEA proceeding,
including statements of accounts, schedules investigation or hearing (including such
of rates fees and charges, contracts, as are for the purpose of establishing
service rules and regulations, articles of NEA rules and regulations) which may

substantially affect the rights or interests absent from the hearings that he has read the
of any person or persons (including record of the same.
the general public or the National
Government or any department, agency, SECTION 52. Compensation. – The members
instrumentality of political subdivision of the Board of Administrators and other
thereof, if such be the case), the NEA hearing officers as the Board of Administrators
shall cause timely notice in writing to may designate shall be entitled to per diem for
be furnished to, or served upon, or each hearing actually conducted or attended
appropriately published to such person by them in such amount as may be fixed by
or persons to the end of affording them the President of the Philippines.
reasonable opportunity, as a party or
otherwise, directly to participate, or SECTION 53. Hearing Rules; Contempt. – All
otherwise to have their positions, views hearings and investigations conducted by
and interests adequately presented to the NEA shall be governed by rules adopted
or represented, in such proceedings, by the NEA, and in the conduct thereof the
investigation or hearing. NEA shall not be bound by the technical
rules of legal evidence: Provided, That
(b) Upon the completion of any such the NEA or such member of the Board of
proceeding, investigation or hearing, the Administrators when conducting a hearing,
NEA shall cause timely notice of any order may summarily punish for contempt by a
issuing thereupon to be furnished to, or fine not exceeding Two Hundred Pesos (P
served upon, or appropriately published 200.00) or by imprisonment not exceeding
to any person or persons (including ten (10) days, or both, any person guilty of
the general public or the National misconduct in the presence of the hearing or
Government or any department, agency, so near the same as to interrupt the hearing,
instrumentality or political subdivision proceeding, session or investigation including
thereof, if such be the case) who will be cases in which a person present at a hearing,
directly affected thereby. Such notice proceeding, session or investigation refuses
shall be supplementary to, not in conflict to be sworn as a witness or to answer as such
with or in lieu of, the notices and services when lawfully required to do so. To enforce
otherwise provided for in this Chapter. the provisions of this section, the NEA, or
such member thereof, may, if necessary,
SECTION 51. Hearings Conducted by Board request the assistance of the municipal police
of Administrators or any Member Thereof. – for the execution of any order made for said
NEA hearings pursuant to this Chapter may be purpose.
conducted by the Board of Administrators en
banc or by any one or more members thereof, SECTION 54. Subpoenas; Contempt. –
as the Board of Administrators may decide:
Provided, That the Administrator shall preside (a) The NEA may issue subpoenas and
when the Board of Administrators sits en subpoenas duces tecum, for witness in
banc: Provided, further, That all hearings any matter of inquiry pending before it,
shall be of record: and Provided finally, that and require the production of all books,
findings, determinations, orders and rulings papers, tariffs, contracts, agreements,
based upon such hearings shall require the and all other documents which it may
affirmative majority of all the members deem necessary in any proceeding. Such
of the Board of Administrators upon the process shall be issued under the seal of
certification, to become a part of such the NEA, signed by one of the members
findings, determinations and orders, on the of the NEA Board of Administrators,
part of any member of the Board who was and may be served by any person of

full age, or by registered mail. In case (e) Witnesses appearing before the NEA in
of disobedience to such subpoena, the obedience to subpoena or subpoena
NEA may invoke the aid of the Supreme duces tecum shall be entitled to receive
Court, or of any Court of First Instance the same fees and mileage allowance
of the Philippines in requiring the as witnesses attending Courts of First
attendance and testimony of witnesses Instance in civil cases;
and the production of books, papers and
documents under the provision of this (f) Any person who shall obstruct the NEA
Chapter, and the Supreme Court, or any or any member of the NEA Board while
Court of First Instance of the Philippines engaged in the discharge of official
within the jurisdiction of which such duties, or who shall conduct himself in a
inquiry is carried on, may, in case of rude, disrespectful or disorderly manner
contumacy or refusal to obey a subpoena, before the NEA or any NEA Board Member
issue to any public service entity subject while engaged in the discharge of official
to the provisions of this Decree, or to any duties, or shall orally or in writing be
person, an order requiring such public disrespectful to, offend or insult any of
service entity or person to appear before the NEA Board Members on occasion or
the NEA and produce books and papers by reason of the performance of official
if so ordered and give evidence touching duties, upon conviction thereof by a
the matter in question; and any failure court of competent jurisdiction, shall be
to obey such order of the Court may punished for each offense by a fine not
be punished by such court as contempt exceeding One Thousand Pesos (P 1,000),
thereof. or by imprisonment not exceeding six
months, or both, in the discretion of the
(b) Any person who shall neglect or refuse court.
to answer any lawful inquiry or produce
before the NEA books, papers, tariffs, SECTION 55. Testifying. – No person shall be
contracts, agreements, and documents, excused from testifying or from producing any
or other things called for by the NEA if book, document, or paper in any investigation
his power to do so, in obedience to the or inquiry by or upon the hearing before the
subpoena or lawful inquiry of the NEA, NEA when ordered so to do by the NEA,
upon conviction thereof by a court of except when the testimony or evidence
competent jurisdiction, shall be punished required of him may tend to incriminate him.
by a fine not exceeding Five Thousand Without the consent of the interested party,
Pesos (P 5,000.00) or by imprisonment no member or employee of the NEA shall be
not exceeding one year, or both in the compelled or permitted to give testimony in
discretion of the court; any civil suit to which the NEA is not a party,
with regard to secrets obtained by him in the
(c) Any NEA Board Member shall have the discharge of his official duty.
power to administer oaths in all matters
under the jurisdiction of the NEA; SECTION 56. Depositions. – The NEA may,
in any investigation, proceeding or hearing,
(d) Any person who shall testify falsely by its order in writing, cause the deposition
or make any false affidavit or oath of witnesses residing within or without
before the NEA or before any of its the Philippines to be taken in the manner
members shall be guilty of perjury, and, prescribed by the Rules of Court. Where
upon conviction thereof in a court of witnesses reside in places distant from Manila
competent jurisdiction, shall be punished and it would be inconvenient and expensive
as provided by law; for them to appear personally before the NEA,

the NEA may, by proper order, commission SECTION 58. Reconsideration. – Any interested
any clerk of the Court of First Instance, party may request the reconsideration of any
municipal judge or justice of the peace of the order, ruling, or decision of the NEA by means
Philippines to take the deposition of witnesses of a petition filed not later than fifteen (15)
in any case pending before the NEA. It shall days after the date of the notice of the order,
be the duty of the official so commissioned ruling, of decision in question. The grounds
to designate promptly a date or dates for the on which the request for reconsideration is
taking of such deposition, giving timely notice based shall be clearly and specifically stated
to the parties, and on said date to proceed in the petition. Copies of said petition shall be
to take the deposition, reducing it to writing. served on all parties interested in the matter.
After the depositions have been taken, the It shall be the duty of the NEA to decide the
official so commissioned shall certify to same within thirty (30) days, either denying
the depositions taken and forward them the petition or revoking or modifying the
as soon as possible to the NEA. It shall be order, ruling, or decision under consideration.
the duty of the respective parties to furnish If no petition for reconsideration is filed, no
stenographers for taking and transcribing review by the Supreme Court as hereinafter
the testimony taken. In case there are no provided shall be allowed.
stenographers available, the testimony shall
be taken in long hand by such person as the SECTION 59. Court Review. – The Supreme
clerk of court, the municipal judge or justice Court is hereby given jurisdiction to review
or the peace may designate. The NEA may any order, ruling, or decision of the NEA and
also commission a notary public to take the to modify or set aside such order, ruling, or
depositions in the same manner herein decision when it clearly appears that there
provided. was no evidence before the NEA to support
reasonably such order, ruling, or decision,
The Board may also, by proper order, or that the same is contrary to law, or that it
authorize any of the attorneys of the legal was without the jurisdiction of the NEA. The
division or division chiefs of the NEA to hear evidence presented to the NEA, together
and investigate any case filed with the NEA or with the record of the proceedings before
any matter within the jurisdiction of the NEA the NEA, shall be certified by the NEA to the
and in connection therewith to receive such Supreme Court. Any order, ruling, or decision
evidence as maybe material thereto. At the of the NEA may likewise be reviewed by the
conclusion of the hearing or investigation, the Supreme Court upon a writ of certiorari in
attorney or division chief so authorized shall proper cases. The procedure for review,
submit the evidence received by him for the except as herein provided, shall be prescribed
Board of Administrators to enable the latter by rules of the Supreme Court. Any order,
to render its decision. ruling, or decision of the NEA may be
reviewed on the application of any person or
SECTION 57. Service. – Every order made by public service entity aggrieved thereby and
the NEA shall be served upon the person or who was a party in the subject proceeding, by
public service entity affected thereby within certiorari in appropriate cases or by a petition
ten (10) days from the time said order is filed, for review, which shall be filed within thirty
by personal delivery or by ordinary mail, (30) days from the notification of the NEA
upon the attorney of record or, in case there order, decision, or ruling or reconsideration.
be no attorney of record, upon the party Said petition shall be placed on file in the
interested; and in case a certified copy is sent office of the Clerk of the Supreme Court who
by registered mail, the registry mail receipt shall furnish copies thereof to the NEA and
shall be prima facie evidence of the receipt of other interested parties.
such order by the public service entity in due
course of mail.
SECTION 60. No Stay. – The institution of a and contracts of the NEA are hereby
writ of certiorari or other special remedies in transferred to and are vested in, and
the Supreme Court shall in no case supersede assumed by the NEA established under
or stay any order, ruling, or decision of the this Decree;
NEA unless the Court shall so direct, and the
appellant may be required by the Court to (d) All personnel of the NEA shall be absorbed
give bond in such form and of such amount as and transferred to the NEA established
may be deemed proper. under this Decree without demotion in
rank nor reduction in salary; and
SECTION 61. NEA Counsel. – The chief of the
legal division or any other attorney of the (e) All on-going projects and/or approved
NEA shall represent the same in all judicial loans of the NEA established under
proceedings. It shall be the duty of the Republic Act No. 6038 shall be reviewed
Solicitor General to represent the NEA in any by the NEA established under this
judicial proceeding if, for special reasons, the Decree and, insofar as found to be
administrators shall request his intervention. economically feasible in accordance
with sound management, engineering
CHAPTER V and technological standards, shall be
Transitory Provisions continued and completed on a priority
basis.
SECTION 62. Existing NEA Continued. –
SECTION 63. Separability of Provisions. – If any
(a) The existing Board of Administrators of provision of this Decree, or the application of
the NEA and the Administrator thereof such provision to any person or circumstance,
shall be the Board of Administrators and is declared invalid, the remainder of the
Administrator provided for under this Decree or the application of such provision to
Decree, and their respective terms shall other persons or circumstances shall not be
be and continue as already established. affected by such declaration.

(b) Any preference to the NEA in any SECTION 64. Effect on Other Acts. – All acts
existing law or in any executive order or or parts of Acts inconsistent herewith are
proclamation of the President shall, with repealed or modified accordingly.
respect to any duty or function assumed
by the NEA pursuant to said Decree, be SECTION 65. Effectivity. – This Decree shall
deemed hereafter to have reference to take effect immediately.
the NEA established under this Decree;
(c) The properties, assets, rights, choses in August in the year of Our Lord, nineteen
action, obligations, liabilities, records hundred and seventy-three.


AMENDING SECTION 6 OF CHAPTER II OF PRESIDENTIAL DECREE NO. 269 IN ORDER TO INCREASE

THE CAPITALIZATION OF THE NATIONAL ELECTRIFICATION ADMINISTRATION
WHEREAS, under the basic policies for the “SECTION 6. Capital Stock. – The
rationalization of the electric power industry authorized capital stock of NEA is
established under Presidential Decree No. Two Billion Pesos divided into Fifty
269, the NEA was given the responsibility (50) Million shares with a par value
of setting up electric cooperatives for the of One Hundred Pesos (P 100.00)
generation, transmission and distribution of each, which shares are not to be
electric power, and to determine privately- transferred, negotiated, pledged,
owned public utilities which should be mortgaged or otherwise given as
permitted to remain in operation in order to security for the payment of any
attain total electrification on an area coverage obligation. Beginning with the
basis; Fiscal Year 1978, the sum of Two
Hundred Million Pesos is hereby
WHEREAS, the magnitude of the appropriated out of the funds in
electrification program envisioned under the National Treasury not otherwise
said decree requires the infusion of massive appropriated and the same amount
governmental support and financial annually thereafter until the balance
assistance in order to achieve the ultimate of the unpaid subscription of the
objective of total electrification; government to the capital stock of
the corporation shall have been paid
WHEREAS, the financial resources of in full. Such annual appropriation
NEA, although supplemented by foreign shall be programmed and released
borrowings, are still deemed insufficient by the Budget Commission in
to finance and accelerate the rapid accordance with the schedule of cash
implementation of the national commitment requirements to be submitted by
of total electrification; the NEA: Provided, That this annual
appropriation of Two Hundred
WHEREAS, it is necessary to appropriate Million Pesos and the programming
additional funds for the immediate realization and release thereof shall remain
of this objective. in force until the entire capital
stock of the NEA is paid in full.”
NOW, THEREFORE, I, FERDINAND E. MARCOS,
President of the Philippines, by virtue of the SECTION 2. This Decree shall take effect
powers vested in me by the Constitution, do immediately.
hereby order and decree as follows:
Done in the City of Manila, this 2nd day
SECTION 1. Section 6 of Presidential Decree of May, in the year of Our Lord, nineteen
No. 269 is hereby amended to read as follows: hundred and seventy-eight.



AMENDING PRESIDENTIAL DECREE NO. 269, INCREASING THE CAPITALIZATION AND BROADENING
THE LENDING AND REGULATORY POWERS OF THE NATIONAL ELECTRIFICATION ADMINISTRATION
AND FOR OTHER PURPOSES
WHEREAS, under Presidential Decree No. 269, “SECTION 6. Capital Stock. – The
the National Electrification Administration authorized capital of NEA shall be
(NEA) is charged with the responsibility of Five Billion Pesos, divided into fifty
organizing, financing and regulating electric (50) million shares with a par value of
cooperatives throughout the country; one hundred pesos (P 100.00) each,
which shares shall not be transferred,
WHEREAS, the total electrification of all negotiated, pledged, mortgaged, or
municipalities by the year 1987 is a declared otherwise given as security for the
goal of the government; payment of any obligation.

WHEREAS, the international energy crisis The sum of not less than five hundred
may seriously delay the attainment of million pesos shall be earmarked out
electrification goals unless indigenous and of the corporate equity investment
renewable energy resources are immediately funds contained in Batas Pambansa
developed to supplement existing power Blg. 40 and the same amount is
systems; hereby appropriated out of the
funds in the National Treasury not
WHEREAS, the development of systems otherwise appropriated, for the
powered by indigenous and renewable payment of subscriptions to NEA
energy resources will require funding capital stock, for each year beginning
support beyond the capability of existing NEA with fiscal year 1981 until the unpaid
capitalization and may require NEA equity subscription of the government to
investments in the said systems; the capital stock of the corporation
shall have been paid in full: Provided,
WHEREAS, there is a distinct need to That additional amounts as may
provide NEA with additional authority to be needed shall be included in the
take measures that will better safeguard annual General Appropriations Act.”
government inputs in electric cooperatives
and other entities that are or will be related SECTION 2. Section 4, Chapter II of
to the total electrification effort; Presidential Decree No. 269 is hereby
amended by deleting the word “and” at the
NOW, THEREFORE, I, FERDINAND E. MARCOS, end of subsection “(n)”, modifying subsection
President and Prime Minister of the Republic (1) and adding new subsections (p), (q) and (r)
of the Philippines, by virtue of the powers to read as follows:
vested in me by the Constitution, do hereby
order and decree; “(1) To require the submission
of Articles of Incorporation, by-
SECTION 1. Section 6 of Presidential Decree laws, and documents relating to
No. 269 (as amended) is hereby further consolidation merger, conversion,
amended to read as follows: dissolution, change in the location
of principal offices, and election to

dissolve, from all recipients of loans and the program so requires, and to
and/or equity investments and prescribe the functions of said Acting
upon determination that such are General Manager and/or Project
in conformity with this Decree, to Supervisor, which powers shall not
certify the same, to file them in the be nullified, altered or diminished by
records of the NEA and to maintain a any policy or resolution of the Board
registry of such filings the provisions of Directors of the Cooperative
of Act No. 1458, as amended, to be concerned.”
contrary notwithstanding.”
SECTION 4. Section 8 (b), Chapter II of
“(p) To invest and/or grant loans Presidential Decree No. 269 is hereby
for the development of power amended to read as follows:
generation industries or companies,
including dendro-thermal and mini- “(b) With respect to foreign
hydro-power plants and associated indebtedness to be incurred by the
facilities such as alcogas and tree NEA, such may be contracted, in the
plantations, water impounding form of loans, credits convertible to
reservoirs and feeder roads: foreign currencies, or other forms
Provided, That such investments and of indebtedness, from foreign
loans shall be limited to a specific governments or any international
percentage of total requirements financial institution or fund source,
as may be determined by the NEA including foreign private lenders.
Board of Administrators.” The total outstanding amount of
such indebtedness exclusive of
“(q) To organize wholly or partly interest, shall not exceed eight
owned companies and subsidiaries hundred million United States dollars
for the purpose of operating power or the equivalent thereof in other
generating and distribution systems currencies. The President of the
and other related activities; and” Philippines by himself or through
his duly authorized representative
“(r) To organize wholly or partly is hereby authorized to negotiate
owned subsidiaries for the purpose and to contract with foreign
of manufacturing materials and governments or any international
equipment for power generating financial institution or fund source in
systems.” the name and on behalf of NEA and
is further authorized to guarantee,
SECTION 3. Section 5 (a), Chapter II of absolutely and unconditionally, as
Presidential Decree No. 269 is hereby primary obligor and not merely as
amended by adding sub-paragraph (6) to a surety, in the name and on behalf
read as follows: of the Republic of the Philippines,
the repayment of any indebtedness
“(6) To authorize the NEA thereby contracted and the payment
Administrator to designate, subject thereof of any due interest charge,
to the confirmation of the Board of up to the limited amount authorized
Administrators, an Acting General by the foregoing, which shall be
Manager and/or Project Supervisor over and above the amounts
for a Cooperative where vacancies which the President is authorized
in the said positions occur and/or to guarantee under R.A. 6142, as
when the interest of the Cooperative amended, and also to guarantee

the performance of all or any of the of Administrators may avail of any or
obligations undertaken by the NEA all of the following remedies:
in the territory of the Republic of
the Philippines pursuant to this sub- “(a) Refuse to make or approve
paragraph (b). Any indebtedness any loan to the borrower or
contracted under this sub-paragraph to release funds to implement
(b) and the payment of the principal loans that are otherwise already
thereof and of any interest charges approved;
thereon, as well as the importation
by the NEA, paid from the proceeds of “(b) Withhold NEA advances, or
any such contracted interest charges withhold approval of advances
thereon, as well as the importation or fund releases in behalf of any
of machinery, equipment, materials, other lender with respect to
supplies and services by the NEA, which the NEA has such power
paid from the proceeds of any relative to loans made;
such contracted indebtedness,
shall also be exempt from all direct “(c) Withhold any technical
and indirect taxes, fees, imposts, or professional assistance
other charges and restrictions, otherwise being furnished or
including import restrictions, by the that might be furnished to the
Republic of the Philippines or by any borrower;
authority, branch, division or political
subdivision thereof.” “(d) Foreclosure any mortgage or
deed of trust or other security
SECTION 5. Section 10, Chapter II of hold by the NEA on the properties
Presidential Decree No. 269 is hereby of such borrower, in connection
amended to read as follows: with which the NEA may subject
to any superior or co-equal rights
“SEC. 10. Enforcement Powers and in such lien held by any other
Remedies. – In the exercise of its lender, (1) bid for and purchase
power of supervision and control or otherwise acquire such
over electric cooperatives and other properties; (2) pay the purchase
borrower, supervised or controlled price thereof and any costs and
entities, the NEA is empowered to expenses incurred in connection
issue orders, rules and regulations therewith out of the revolving
and motu propio or upon petition fund; (3) accept title to such
of third parties, to conduct properties in the name of the
investigations, referenda and other Republic of the Philippines; and
similar actions in all matters affecting (4) even prior to the institution
said electric cooperatives and other of foreclosure proceedings,
borrower, or supervised or controlled operate or lease such properties
entities. for such period, and in such
manner as may be deemed
If the electric cooperative concerned necessary or advisable to
or other similar entity fails after protect the investment therein,
due notice to comply with NEA including the improvement,
orders, rules and regulations and/or maintenance and rehabilitation
decisions, or with any of the terms of of systems to be foreclosed, but
the Loan Agreement, the NEA Board the NEA may, within five years

after acquiring such properties in “SECTION 24. Board of Directors. –
foreclosure proceedings; sell the (a) The Management of a Cooperative
same for such consideration as shall be vested in its Board, subject
it determines to be reasonable to the supervision and control of
and upon such terms and NEA which shall have the right to be
conditions as it determines most represented and to participate in all
conducive to the achievement of Board meetings and deliberations
the purposes of this Decree; or and to approve all policies and
resolutions.
“(e) Take preventive and/or
disciplinary measures including “The composition, qualifications,
suspension and/or removal the manner of elections and filling
and replacement of any or of vacancies, the procedures for
all of the members of the holding meetings and other similar
Board of Directors, officers or provisions shall be defined in the by-
employees of the Cooperative, laws of the Cooperative subject to
other borrower institutions NEA policies, rules and regulations.
or supervised or controlled
entities as the NEA Board of “No member of the Board shall
Administrators may deem fit receive any salary for his service as
and necessary and to take any Director nor for services rendered
other remedial measures as the in any other capacity. However,
law or the Loan Agreement may reasonable per diems for every
provide.” Board meeting actually attended and
reimbursement of actual expenses
“No Cooperative shall borrow money incurred in the performance of the
from any source without the Board duties of a member of the Board
of Administrators’ prior approval: may be allowed as specified in NEA
Provided, That the NEA Board of policies, rules and regulations.”
Administrators, may, by appropriate
rule or regulation, grant general SECTION 8. Section 26, Chapter III of
permission to Cooperative to secure Presidential Decree No. 269 is hereby
short-term loans not requiring the amended to read as follows:
encumbrance of their real properties
or of a substantial portion of their “SECTION 26. Officers. – The officers
other properties or assets.” of a cooperative shall consist of a
President, Vice-President, Secretary
SECTION 6. The provisions of Section 15 to and Treasurer, who shall be elected
40, Chapter III of Presidential Decree No. annually by and from the Board.
269, governing cooperatives shall be also When a person holding such office
applicable to mini-hydro and cendro-thermal ceases to be a director, he shall ipso
power plants, alcogas and tree plantation and facto cease to hold such office. The
other power generating entities supported by offices of Secretary and of Treasurer
NEA. may be held concurrently by one
person. The Board may also elect or
SECTION 7. Subsection (a), Section 24, appoint such other officers, agents
Chapter III of Presidential Decree No. 269 is or employees as it deems necessary
hereby amended to read as follows: or advisable and shall prescribe their
powers and duties, subject to the

pertinent provisions of this Decree, Done in the City of Manila, this 8th day of
the Loan Agreement, and NEA October, in the year of Our Lord, nineteen
policies, rules and regulation.” hundred and seventy-nine.

SECTION 9. Effectivity. – This Decree shall
take effect immediately.


Chapter 6

AN ACT TO CREATE THE PHILIPPINE NUCLEAR ENERGY COMMISSION TO ADMINISTER, REGULATE,
AND CONTROL THE USE, APPLICATION, AND DISPOSITION OF FISSIONABLE MATERIALS; TO
AUTHORIZE THE ESTABLISHMENT AND ADMINISTRATION OF AN ATOMIC ENERGY REACTOR;
TO DETERMINE THE MANNER OF DEVELOPMENT, USE AND CONTROL OF ATOMIC ENERGY, TO
PROVIDE FUNDS THEREFOR, AND FOR OTHER PURPOSES
SECTION 1. For the purpose of carrying out (5) To standardize commercial samples
the following functions, a Philippine Nuclear of radioactive materials, particularly
Energy Commission is hereby created: those urgently needed in medicine and
agriculture;
(1) To establish well-equipped laboratories
for nuclear research and training manned (6) To approve and facilitate the procurement
by competent scientists and other of radioactive materials and instruments
personnel; used in nuclear laboratories free from
government taxes and unnecessary
(2) To encourage and directly undertake the delays;
training of promising men in the field
of nuclear science and to select and (7) To issue licenses for the use of radioactive,
screen young Filipinos for government fissionable, and fertile materials,
scholarships abroad in nuclear physics, including processing as far as such work
nuclear chemistry, and nuclear biology is not covered by the Mining Act;
in various levels according to their
competence and preparation; (8) To disseminate accurate information, on
various levels, regarding nuclear energy
(3) To coordinate the work of various by means of publications, lectures,
research institutions and entities and symposia, conferences, and other means
various government bureaus, particularly of communication suitable for the
the and the AFP, in nuclear energy and its occasion.
applications;
SECTION 2. The Philippine Nuclear Energy
(4) To represent the Philippines in atomic and Commission shall be composed of five
nuclear energy conferences and dealings members to be appointed by the President
with local as well as foreign entities in of the Philippines, provided they have the
matters pertaining to nuclear energy and necessary specified qualifications and subject
its applications; to the confirmation of the Commission
on Appointments. The members shall be
citizens of the Philippines, of legal age, of members who shall be appointed by the
proper mental aptitude and scientific training President, upon the recommendation of the
and shall have passed the necessary security Philippine Nuclear Energy Commission, and
clearance. The chairman of said Nuclear shall include one each of (a) physicist, (b)
Energy Commission shall have a cabinet rank chemist, (c) engineer, (d) doctor of medicine,
worthy of the importance of nuclear energy (e) agriculturist, (f) biologist, (g) industrialist,
and its applications for the scientific progress (h) economist, and (i) pharmacist. The
of the Philippines in this new field. members of this Technical Advisory
Committee shall receive a per diem of Fifty
The chairman and vice-chairman of the Pesos and transportation expenses.
Commission shall have, in addition to the
already stated qualifications, the necessary The Commission is empowered to request
scientific and technical qualifications, a the services of any qualified person in the
doctorate in physics and/or chemistry, and Philippines, whenever such services are
a broad professional background. The term indispensable to the Commission, under
of office of each member of the Commission the same conditions as any member of the
shall be four (4) years, as follows: one for one Technical Advisory Committee.
year, another for two years, the third for three
years, and the last two for four years; and any SECTION 4. The chairman, with the
member appointed to fill a vacancy prior to approval of the Commission, shall appoint an
the expiration of the term of his predecessor Executive Secretary, a Director of Research,
shall be appointed only for the remaining and a Director of Regulation Services, and
period of the term. any other such personnel as the chiefs for
the following divisions: (a) under the Director
The President of the Philippines may remove of Research, the Division of Reactor Design
from office any member of the Commission, and Operation, the Division of Nuclear
after hearing for cause, for inefficiency, Physics, the Division on Isotope Works, and
neglect of duty, disloyalty or gross misconduct the Training Division; and (b) under the
in office, or conviction of crimes involving Director of Regulation Services, the Medical
national security, in accordance with existing Services Division, Agricultural Services
laws. Division, Industrial Services Division, Legal
and Administrative Division, Procurement
The chairman and the vice-chairman shall and Disposal of Radioactive Materials
be full-time members of the Commission Division, and such other personnel as may be
and shall receive an annual compensation of necessary to carry out the purposes of this
Twenty-Four Thousand Pesos and Eighteen Act. The Commission shall be empowered to
Thousand Pesos, respectively, and the fix compensation and terms of office of these
other members shall receive a per diem officers, unless covered by the civil service
compensation of Sixty Pesos for each meeting regulations.
attended, and all members shall be entitled to
necessary traveling and other expenses while SECTION 5. The Philippine Nuclear
engaged in the work of the Commission. Energy Commission shall:

SECTION 3. There is hereby created (1) Be authorized to issue license in favor
a Technical Advisory Committee to advice, of any qualified person, partnership or
collectively or individually, the Commission corporation to sell, buy, process, use
on scientific and technical matters relating to and/or dispose of radioactive and/or
minerals, materials, production, and research fissionable materials for commercial,
and development, to be composed of nine industrial, scientific, agricultural and/or

medical uses, or for the conduct of test, (5) Promulgate rules and regulations
experiment and research along such lines, regarding the purchase, sale, processing,
and for any other purpose, provided that use and disposition of radioactive and/
those already engaged in such nuclear or fissionable materials and such other
research are allowed to continue unless rules and regulations necessary to carry
violating any other provision of this out the provisions of this Act; and
Act. Users of less than ten millicuries of
radioactive substance are only required (6) Be authorized to perform any other
to notify the Commission and make the activity to carry out its purpose as stated
necessary safeguards. in section one of this Act.

(2) Make arrangements for the establishment SECTION 6. The Commission may call upon
of a nuclear reactor, and, in general, any department, bureau, office, or agency
to conduct research and development of the Government for the purpose of
relating to: securing any information, data, and materials
necessary in carrying out its work or in
(a) Nuclear processes; enforcing its regulations.

(b) The theory and production of SECTION 7. The Commission shall be
atomic energy, including processes, empowered to offer research facilities and
materials, and devices related to financial or other to deserving projects
such production; by public or private parties. In case
patentable inventions should result from
(c) Utilization of special nuclear such government-subsidized research, the
material and radioactive material benefits shall be shared equally between the
for commercial, industrial, medical, inventory and the government.
biological, agricultural, health, or
military purposes; SECTION 8. No person, association,
partnership or corporation shall sell, buy,
(d) The promotion of nuclear research process, use, and/or otherwise dispose
and application in all fields of of radioactive and/or other fissionable or
nucleonics; fertile materials and tritium without first
being duly licensed by the Philippine Nuclear
(e) The issuance of rules and regulations Energy Commission, with the exception
for the personnel and the general of conventional commercial items, like
public, and see to it that enforcement luminous-dial clocks, or any other item for
of such rules and regulations for the ordinary use, provided they do not contain
protection of personnel and the more than ten microcuries of radioactive
public is carried out. substance or its equivalent.

(3) Acquire and distribute supplies of SECTION 9. All persons connected with the
fissionable materials and suitable Philippine Nuclear Energy Commission shall,
isotopes. prior to appointment, be cleared for security
purposes.
(4) Screen, select, and appoint candidates for
overseas training in nuclear technology The Commission has the power to decide
and science at government expense. which information may be withheld from the
public for reason of national security.


SECTION 10. There is hereby appropriated, Pesos or by imprisonment of not more than
out of any funds of the National Treasury not five years, or both, in the discretion of the
otherwise appropriated, an initial sum of Two Court.
Million Pesos for the purpose of carrying out
the provisions of this Act, and funds for at Whoever commits such offense with intent
least one million pesos shall be appropriated to injure the Republic of the Philippines or
yearly for maintenance and research. The with intent to give advantage in favor of any
Philippine Nuclear Energy Commission shall foreign nation by such treasonable act shall,
submit yearly progress reports of its work to upon conviction thereof, be punished by
the President of the Philippines. death or imprisonment for life.

SECTION 11. Any person who willfully SECTION 12. This Act shall be known as
violates, attempts to violate, or conspires the Philippine Nuclear Energy Act of 1957.
to violate, any provision of this Act or of
any regulations promulgated thereunder, SECTION 13. This Act shall take effect
or whoever unlawfully interferes, attempts upon its approval.
to interfere, or conspires to interfere, in the
administration of the provisions of this Act, Approved, June 22, 1957
shall, upon conviction thereof, be punished
by a fine of not more than Ten Thousand

AN ACT PENALIZING THE PILFERAGE OF ELECTRICITY AND THEFT OF ELECTRIC POWER
TRANSMISSION LINES/MATERIALS, RATIONALIZING SYSTEM LOSSES BY PHASING OUT PILFERAGE
LOSSES AS A COMPONENT THEREOF AND FOR OTHER PURPOSES

SECTION 1. Short Title. – This Act shall be facilities of any duly registered consumer
referred to as the “Anti-electricity and Electric without the latter’s or the electric utility’s
Transmission Lines/Materials Pilferage Act of consent or authority;
1994”.
(c) Tamper, install or use a tampered
SECTION 2. Illegal Use of Electricity. – It is electrical meter, jumper, current
hereby declared unlawful for any person, reversing transformer, shorting or
whether natural or juridical, public or private, shunting wire, loop connection or any
to: other device which interferes with the
proper or accurate registry or metering of
(a) Tap, make or cause to be made any electric current or otherwise results in its
connection with overhead lines, service diversion in a manner whereby electricity
drops, or other electric service wires, is stolen or wasted;
without previous authority or consent of
the private electric utility or rural electric (d) Damage or destroy an electric meter,
cooperative concerned; equipment, wire or conduit or allow any
of them to be so damaged or destroyed
(b) Tap, make or cause to be made any as to interfere with the proper or accurate
connection to the existing electric service metering of electric current; and

(e) Knowingly use or receive the direct power transmission line/material,
benefit of electric service obtained whether or not the act is done for
through any of the acts mentioned in profit or gain, without first securing
subsections (a), (b), (c), and (d) above. a clearance/permit for the said
purpose from its owner or the
SECTION 3. Theft of Electric Power National Power Corporation (NPC) or
Transmission Lines and Materials. – its regional office concerned, as the
case may be.
(a) It is hereby declared unlawful for any
person to: (b) For purposes of this section, “electrical
power transmission line/material”
(1) Cut, saw, slice, separate, split, refers to electric power transmission
severe, smelt, or remove any electric steel towers, woodpoles, cables, wires,
power transmission line/material or insulators, line hardwares, electrical
meter from a tower, pole, any other conductors and other related items with
installation or place of installation a minimum voltage of sixty-nine kilovolts
or any other place or site where (69 kv), such as the following:
it may be rightfully or lawfully
stored, deposited, kept, stocked, (1) Steel transmission line towers made
inventoried, situated or located, of galvanized steel angular members
without the consent of the owner, and plates or creosoted and/or
whether or not the act is done for tannelized woodpoles/concrete
profit or gain; poles and designed to carry and
support the conductors;
(2) Take, carry away or remove or
transfer, with or without the use (2) Aluminum conductor steel reinforced
of a motor vehicle or other means (ACSR) in excess of one hundred
of conveyance, any electric power (100) MCM;
transmission line/material or meter
from a tower, pole, any other (3) Overhead ground wires made of 7
installation or place of installation, strands of galvanized steel wires,
or any place or site where it may 3.08 millimeters in diameter and
be rightfully or lawfully stored, designed to protect the electrical
deposited, kept, stocked, inventoried, conductors from lightning strikes;
situated or located, without the
consent of the owner, whether or (4) Insulators made of porcelain or
not the act is done for profit or gain; glass shell and designed to insulate
the electrical conductors from steel
(3) Store, possess or otherwise keep towers or woodpoles; and
in his premises, custody or control,
any electrical power transmission (5) Various transmission line
line/material or meter without the hardwares and materials made
consent of the owner, whether or of aluminum alloy or malleable
not the act is done for profit or gain; steel and designed to interconnect
and the towers, conductors, ground
wires, and insulators mentioned
(4) Load, carry, ship or move from in subparagraphs (1), (2), (3) and
one place to another, whether (4) above for the safe and reliable
by land, air or sea any electrical operation of the transmission lines.

SECTION 4. Prima Facie Evidence. – (vi) The mutilation, alteration,
reconnection, disconnection,
(a) The presence of any of the following bypassing or tampering of
circumstances shall constitute prima instruments, transformers, and
facie evidence of illegal use of electricity, accessories;
as defined in this Act, by the person
benefited thereby, and shall be the basis (vii) The destruction of, or attempt to
for: (1) the immediate disconnection by destroy, any integral accessory of the
the electric utility to such person after metering device box which encases
due notice, (2) the holding of preliminary an electric meter, or its metering
investigation by the prosecutor and accessories; and
the subsequent filing in court of the
pertinent information, and (3) the lifting (viii)The acceptance of money and/or
of any temporary restraining order or other valuable consideration by any
injunction which may have been issued officer or employee of the electric
against a private electric utility or rural utility concerned or the making of
electric cooperative: such an offer to any such officer
or employee for not reporting the
(i) The presence of the bored hole on presence of any of the circumstances
the glass cover of the electric meter, enumerated in subparagraphs
or at the back or any other part of (i), (ii), (iii), (iv), (v), (vi), or (vii)
said meter; hereof: Provided, however, That the
discovery of any of the foregoing
(ii) The presence inside the electric circumstances, in order to constitute
meter of salt, sugar and other prima facie evidence, must be
elements that could result in the personally witnessed and attested
inaccurate registration of the meter’s to by an officer of the law or a duly
internal parts to prevent its accurate authorized representative of the
registration of consumption of Energy Regulatory Board (ERB).
electricity;
(b) The possession, control or custody of
(iii) The existence of any wiring electric power transmission line/ material
connection which affects the normal by any person, natural or juridical,
operation or registration of the not engaged in the transformation,
electric meter; transmission or distribution of electric
power, or in the manufacture of such
(iv) The presence of a tampered, electric power transmission line/material
broken, or fake seal on the meter, shall be prima facie evidence that such
or mutilated, altered, or tampered line/martial is the fruit of the offense
meter recording chart or graph or defined in Section 3 hereof and therefore
computerized chart, graph or log; such line/material may be confiscated
from the person in possession, control or
(v) The presence in any part of a building custody thereof.
or its premises which is subject
to the control of the consumer or SECTION 5. Incentives. – An incentive scheme
on the electric meter, of a current by way of a monetary reward in the minimum
reversing transformer, jumper, amount of Five Thousand Pesos (P 5,000)
shorting and/or shunting wire, and/ shall be given to any person who shall report
or loop connection or any other to the NPC or police authorities any act which
similar device; may constitute a violation of Section 3 hereof.
The Department of Energy (DOE), in concerned double the value of the estimated
consultation with the NPC, shall issue electricity illegally used which is referred to in
the necessary guidelines for the proper this section as differential billing.
implementation of this incentive scheme with
in thirty (30) days from the effectivity of this For purposes of this Act, “differential billing”
Act. shall refer to the amount to be charged to the
person concerned for the unbilled electricity
SECTION 6. Disconnection of Electric Service. illegally consumed by him as determined
– The private electric utility or rural electric through the use of methodologies which
cooperative concerned shall have the right utilize, among other, as basis for determining
and authority to disconnect immediately the amount of monthly electric consumption
the electric service after serving the written in kilowatt-hours to be billed either : (a) the
notice or warning to the effect, without the highest recorded monthly consumption
need of a court or administrative order, and within the five-year billing period preceding
deny restoration of the same, when the owner the time of the discovery, (b) the estimated
of the house or establishment concerned or monthly consumption as per the report of
someone acting in his behalf shall have been load inspection conducted during the time
caught en flagrante delicto doing any of the of the discovery, (c) the higher consumption
acts enumerated in section 4 (a) hereof, or between the average consumption before or
when any of the circumstances so enumerated after the highest drastic drop in consumption
shall have been discovered for the second within the five-year billing period preceding
time: Provided, That in the second case, a the discovery, (d) the highest recorded
written notice or warning shall have been monthly consumption within four (4) months
issued upon the first discovery: Provided, after the time of discovery, or (e) the result
further, That the electric service shall not of the ERB test during the time of discovery
be immediately disconnected or shall nor be and, as basis for determining the period to be
immediately restored upon the deposit of the recovered by the differential billing, either:
amount representing the differential billing (1) the time when the electric service of the
by the person denied the service, with the person concerned recorded an abrupt or
private electric utility or the rural cooperative abnormal drop in consumption, or (2) when
concerned or with the competent court as there was change in his service connection
the case may be: Provided, furthermore, That such as a change in his service connection
if the court finds that illegal use of electricity such as a change of meter, change of seal or
has not been committed by the same person, reconnection, or in the absence thereof, a
the amount deposited shall be credited maximum of sixty (60) billing months, up to
against future billings, with legal interest the time of discovery: Provided, however,
thereon chargeable against the private utility That such period shall, in no case, be less than
or rural electric cooperative, and the utility one (1) year preceding the date of discovery
or cooperative shall be made to immediately of the illegal use of electricity.
pay such person double the value of the
payment or deposit with legal interest, which SECTION 7. Penalties. –
amount shall likewise be creditable against
immediate future billings, without prejudice (a) Violation of Section 2 – The penalty of
to any criminal, civil or administrative action prision mayor or a fine ranging from Ten
that such person may be entitled to file under Thousand Pesos (P 10,000) to Twenty
existing laws, rules and regulations: Provided, Thousand Pesos (P 20,000) or both, at the
finally, That if the court finds the same person discretion of the court, shall be imposed
guilty of such illegal use of electricity, he shall, on any person found guilty of violating
upon final judgment, be made to pay the Section 2 hereof.
electric utility or the rural electric cooperative
(b) Violation of Section 3 – The penalty of legal entity, including a government-owned
reclusion temporal or a fine ranging from or -controlled corporation, the penalty shall
Fifty Thousand Pesos (P 50,000) to One be imposed on the president, manager, and
Hundred Thousand Pesos (P 100,000) or each of the officers thereof who shall have
both, at the discretion of the court, shall knowingly permitted, failed to prevent or was
be imposed on any person found guilty of otherwise responsible for the commission of
violating Section 3 hereof. the offense.

(c) Provision common to violations of SECTION 8. Authority to Impose Violation
Section 2 and Section 3 hereof – If the of Contract Surcharges. – A private electric
offense is committed by, or in connivance utility or rural electric cooperative may
with, an officer or employee of the impose surcharges, in addition to the value
power company, private electric utility of electricity pilfered, on the bills of any
or rural electric cooperative concerned, consumer apprehended for tampering with
such officer or employee shall, upon his electric meter/metering facility installed
conviction, be punished with a penalty on his premises, as well as other violations
one (1) degree higher than the penalty of contract like direct connection, use of
provided herein, and forthwith be jumper, and other means of illicit usage of
dismissed and perpetually disqualified electricity found installed in the premises of
from employment in any public or private the consumer. The surcharge for the violation
utility or service company and from of contract shall be collected from and paid
holding any public office. by the consumer concerned as follows:

If, in committing any of the acts enumerated (a) First apprehension – Twenty-five percent
in Section 4 hereof, any of the other acts (25%) of the current bill as surcharge;
enumerated is also committed, then the
penalty next higher in degree as provided (b) Second apprehension – Fifty percent
herein shall be imposed. (50%) of the current bill as surcharge; and

If the offense is committed by, or in (c) Third and subsequent apprehensions
connivance with an officer or employee of – One hundred percent (100%) of the
an electric utility concerned, such officer or current bill as surcharge.
employee shall, upon conviction, be punished
with a penalty of one (1) degree higher than The private electric utility or rural electric
the penalty provided herein, and forthwith be cooperative is authorized to discontinue the
dismissed and perpetually disqualified from electric service in case the consumer is in
employment in any public or private utility arrears in the payment of the above-imposed
or service company. Likewise, the electric surcharges.
utility concerned which shall have knowingly
permitted or having knowledge of its The term “apprehension” as used herein shall
commission shall have failed to prevent the be understood to mean the discovery of the
same, or was otherwise guilty of negligence presence of any of circumstances enumerated
in connection with the commission thereof, in Section 4 hereof in the establishment or
shall be made to pay a fine not exceeding outfit of the consumer concerned.
triple the amount of the “differential billing”
subject to the discretion of the courts. SECTION 9. Restriction on the Issuance of
Restraining Orders or Writs of Injunction. – No
If the violation is committed by a partnership, writ of injunction or restraining order shall be
firm, corporation, association, or any other issued by any court against any private electric

utility or rural electric cooperative exercising (iv) Nine and a half percent (9 1/2%) at
the right and authority to disconnect electric the end of the fourth year following
service as provided in this Act, unless there is the effectivity of this Act.
a prima facie evidence that the disconnection
was made with evident bad faith or grave Provided, That the ERB is hereby authorized
abuse of authority. to determine at the end of the fourth year
following the effectivity of this Act, and as
If, notwithstanding the provisions, a court often as necessary taking into the account
issues an injunction or restraining order, the viability of private electric utilities and
such injunction or restraining order shall be the interest of the consumers, whether the
effective only upon the filing of a bond with caps herein or therefor established shall be
the court which shall be in the form of cash or reduced further which shall, in no case, be
cashier’s check equivalent to the “differential lower than nine percent (9%) and according
billing”, penalties and other charges, or to the accordingly fix the date of the effectivity of
total value of the subject matter of the action: the new caps: Provided, further, That in the
Provided, however, That such injunction calculation of the system loss, power sold
or restraining order shall automatically be by the NPC or any other entity that supplies
refused or, if granted, shall be dissolved upon power directly to a consumer and not through
filing by the public utility of a counterbond the distribution system of the private electric
similar in form and amount as the above utility shall not be counted even if the billing
required: Provided, finally, That whenever for the said power used is through the private
such injunction is granted, the court issuing electric utility.
it shall, within ten (10) days from its issuance,
submit a report to the Supreme Court setting The term “power sold by NPC or any
forth in detail the grounds or reasons for its other entity that supplies power directly
order. to a consumer” as used in the preceding
paragraph shall for purposes of this section be
SECTION 10. Rationalization of System deemed to be sale directly to the consumer
Losses by Phasing out Pilferage Losses as if : (1) the point of metering by the NPC or
a Component Thereof. – There is hereby any other utility is less than one thousand
established a cap on the recoverable rate of (1,000) meters from the consumer, or (2) the
system losses as follows: consumer’s electric consumption is three (3%)
or more of the total load consumption of all
(a) For private electric utilities; the customers of the utility, or (3) there is no
other consumer connected to the distribution
(i) Fourteen and a half percent (14 line of the utility which connects to the NPC
1/2%) at the end of the first year or any other utility point of metering to the
following the effectivity of this Act; consumer meter.
and
(b) For rural electric cooperatives:
(ii) Thirteen and one-fourth percent (13
1/4%) at the end of the second year (i) Twenty-two percent (22%) at the
following the effectivity of this Act; end of the first year following the
effectivity of this Act;
(iii) Eleven and three-fourth percent (11
3/4%) at the end of the third year (ii) Twenty percent (20%) at the end
following the effectivity of this Act; of the second year following the
effectivity of this Act;


(iii) Eighteen percent (18%) at the end of recover the whole amount claimed, and (g)
the third year following the effectivity such other particulars as may be required by
of this Act; ERB. If there is a case pending in court for the
recovery of a pilferage loss, no private electric
(iv) Sixteen percent (16%) at the end utility or rural electric cooperative shall
of the fourth year following the accept payment from the consumer unless
effectivity of this Act; and so provided in a compromise agreement duly
executed by the parties and approved by the
(v) Fourteen percent (14%) at the end of court.
the fifth year following the effectivity
of this Act. SECTION 13. Information Dissemination. –
The private electric utilities, the rural electric
Provided, that the ERB is hereby authorized cooperatives, the NPC, and the National
to determine at the end of the fifth year Electrification Administration (NEA) shall, in
following the effectivity of this Act, and as cooperation with each other, undertake a
often as is necessary, taking into account the vigorous campaign to inform their consumers
viability of rural electric cooperatives and of the provisions of this Act especially sections
the interest of the consumers, whether the 2, 3, 4, 5, 6, 7 and 8 hereof, within sixty (60)
caps herein or theretofore established shall days from the effectivity of this Act and at least
be reduced further which shall in no case, be once a year thereafter, and to incorporate a
lower than nine percent (9%) and accordingly faithful condensation of said provisions in the
fix the date of the effectivity of the new caps. contracts with new consumers.

Provided, finally, That in any case nothing in SECTION 14. Rules and Regulations. – The
this Act shall impair the authority of the ERB ERB shall, within thirty (30) working days
to reduce or phase out technical or design after the conduct of due hearings which must
losses as a component of system losses. commence within thirty (30) working days
upon the effectivity of this Act, issue the rules
SECTION 11. Area of Coverage. – The caps and regulations as may be necessary to ensure
provided in Section 10 of this Act shall apply the efficient and effective implementation of
only to area of coverage of private electric the provisions of this Act, to include but not
utilities and the rural electric cooperatives as limited to, the development of methodologies
of the date of the effectivity of this Act. for computing the amount of electricity
illegally used and the amount of payment
The permissible levels of recovery for system deposit contemplated in Section 7 hereof,
losses in areas of coverage that may be added as a result of the presence of the prima facie
on by either a private electric utility or a rural evidence discovered.
cooperative shall be determined by the ERB.
The ERB shall, within the same period, also
SECTION 12. Recovery of Pilferage Losses. – issue rules and regulations on the submission
Any private electric utility or rural electric of the reports required under Section 12
cooperative which recovers any amount hereof and the procedure for the distribution
of pilferage losses, shall, within thirty (30) to or crediting of consumers for recovered
days from said recovery, report in writing pilferage losses.
and under oath to the ERB: (a) the fact of
recovery, (b) the date thereof, (c) the name SECTION 15. Separability Clause. – Any
of the consumer concerned, (d) the amount portion or provision of this Act which may be
recovered, (e) the amount of pilferage loss declared unconstitutional or invalid shall not
claimed, (f) the explanation for the failure to have the effect of nullifying other portions or
provisions hereof.
SECTION 16. Repealing Clause. – The are inconsistent with this Act, are hereby
provisions in Presidential Decree No. 401, repealed or modified accordingly.
as amended by Batas Pambansa Blg. 876,
penalizing the unauthorized installation of SECTION 17. Effectivity Clause. – This Act
electrical connections, tampering and/or shall take effect thirty (30) days after its
knowing use of tampered electrical meters publication in the Official Gazette or in any
or other devices, and the theft of electricity two (2) national newspapers of general
are hereby expressly repealed. All other circulation.
laws, ordinances, rules, regulations, and
other issuances or parts thereof, which Approved, December 8, 1994.
RULES AND REGULATIONS IMPLEMENTING REPUBLIC ACT NO. 7832

Pursuant to Section 14 of Republic Act No. (e) “Utility” means the Private or Investor-
7832, the Energy Regulatory Board hereby owned Electric Utility and that is owned
adopts and promulgates the following Rules and/or operated by the Municipal, City,
and Regulations to implement the aforesaid Provincial or National Government;
law.
(f) “Cooperative” means the Rural Electric
RULE I Cooperative;
GENERAL PROVISIONS
(g) “Electric power transmission line/
SECTION 1. Title. – These Rules shall be known material” refers to electric power
as the Implementing Rules and Regulations of transmission steel towers, wood poles,
the Anti-Pilferage of Electricity and Theft of cables, wires, insulators, line hardwares,
Electric Transmission Lines/Materials Act of electrical conductors and other related
1994. items with minimum voltage of sixty-nine
kilovolts (69 kv), such as the following:
SECTION 2. Construction. – These Rules shall
be strictly construed to attain the efficient (1) Steel transmission line towers made
and effective implementation of R.A. 7832. of galvanized steel angular members
and plates or creosoted and/or
SECTION 3. Definition of Terms. – As used in tannelized wood poles/concrete
these Rules: poles and designed to carry and
support the conductors;
(a) “ERB” means the Energy Regulatory
Board; (2) Aluminum conductor steel reinforced
(ACSR) in excess of one hundred
(b) “DOE” means the Department of Energy; (100) MCM;

(c) “NEA” means the National Electrification (3) Overhead ground wires made of
Administration; seven (7) strands of galvanized steel
wires, 3.08 millimeters in diameter
(d) “NPC” means the National Power and designed to protect the electrical
Corporation; conductors from lightning strikes;

(4) Insulators made of porcelain or reflected in the current bill;
glass shell and designed to insulate
the electrical conductors from steel (l) “Current bill” shall mean the latest
towers or wood poles; and monthly bill served by the utility or
cooperative which does not include any
(5) Various transmission line period before the time of apprehension.
hardwares and materials made of
aluminum alloy or malleable steel RULE II
and designed to inter-connect ILLEGAL USE OF ELECTRICITY AND THEFT
the towers, conductors, ground OF ELECTRIC POWER TRANSMISSION LINES
wires, and insulators mentioned AND MATERIALS
in subparagraphs (1), (2), (3) and
(4) above for the safe and reliable SECTION 1. Illegal Use of Electricity. – It
operation of transmission lines. shall be unlawful for any person, natural or
juridical, private or public to:
(h) “Differential billing” shall refer to the
amount to be charged to the person (a) Tap, make or cause to be made any
concerned for the unbilled electricity connection with overhead lines, service
illegally consumed as determined drops, or other electric service wires,
through the use of methodologies without previous authority or consent of
outlined in Section 6 of R.A. 7832; the private electric utility or rural electric
cooperative concerned;
(i) “Apprehension” shall be understood to
mean the discovery of the presence of (b) Tap, make or cause to be made any
any circumstances enumerated in Section connection to the existing electric service
4 of R.A. 7832 in the establishment or facilities of any duly registered consumer
outfit of the consumer concerned as without the latter’s or the electric utility’s
personally witnessed and attested to consent or authority;
by the consumer concerned or as duly
authorized ERB representative or any (c) Tamper, install or use a tampered
officer of the law, as the case may be; electrical meter, jumper, current
reversing transformer, shorting or
(j) “Power sold by NPC or any other shunting wire, loop connection or any
entity that supplies power directly other device which interferes with the
to a consumer” is deemed to be sale proper or accurate registry or metering of
directly to the consumer if: (1) the point electric current or otherwise results in its
of metering by the NPC or any other diversion in a manner whereby electricity
utility is less than one thousand (1,000) is stolen or wasted;
meters from the consumer, or (2) the
consumer’s electric consumption is three (d) Damage or destroy an electric meter,
percent (3%) or more of the total load equipment, wire or conduit or allow any
consumption of all the customers of the of them to be so damaged or destroyed as
utility; or (3) there is no other consumer to interfered with the proper or accurate
connected to the distribution line of the metering of electric current; and
utility which connects to the NPC or any
other utility point of metering to the (e) Knowingly use or receive the direct
consumer meter; benefit of electric service obtained
through any of the acts mentioned in
(k) “Current rate” shall mean the average subsections (a), (b), (c) and (d) above.
rate of electricity per kilowatt-hour as
SECTION 2. Theft of Electric Power following circumstances shall constitute prima
Transmission Lines and Materials. – It shall be facie evidence of illegal use of electricity by
unlawful for any person, natural or juridical, the person benefited thereby:
public or private to:
(a) The presence of a bored hole on the glass
(a) Cut, saw, slice, separate, split, sever, cover of the electric meter or at the back
smelt or remove any electric power of any part of said meter;
transmission line/material or meter from
a tower, pole, any other installation or (b) The presence of salt, sugar and other
place of installation or any other place elements inside the electric meter that
or site where it may be rightfully or could result in the inaccurate registration
lawfully stored, deposited, kept, stocked, of the meter’s internal parts to prevent
inventoried, situated or located, without its accurate registration of consumption
the consent of the owner, whether or not of electricity;
the act is done for profit or gain;
(c) The existence of any wiring connection
(b) Take, carry away or remove or transfer, which affects the normal operation or
with or without the use of a motor vehicle registration of the electric meter;
or other means of conveyance, any
electric power transmission line/material (d) The absence of an ERB/NEA seal or the
or meter from a tower, pole, any other presence of a tampered, broken or fake
installation or place of installation, or any seal on the meter or mutilated, altered or
place or site where it may be rightfully or tampered meter recording chart or graph
lawfully stored, deposited, kept, stocked, or computerized chart, graph or log;
inventoried, situated or located, without
the consent of the owner, whether or not (e) The presence of a current reversing
the act is done for profit or gain; transformer, jumper, shorting and/or
shunting wire and/or loop connection
(c) Store, possess or otherwise keep in or other similar device in any part of the
his premises, custody or control, any building or its premises which is subject
electrical power transmission line/ to the control of the consumer or on the
material or meter without the consent of electric meter;
the owner, whether or not the act is done
for profit or gain; and (f) The mutilation, alteration, reconnection,
bypassing or tampering of instruments,
(d) Load, carry, ship or move from one place transformers and accessories;
to another, whether by land, air or sea
any electrical power transmission line/ (g) The destruction of or attempt to destroy
material, whether or not the act is done any integral accessory of the metering
for profit or gain, without first securing device box which encases an electric
a clearance, permit for the said purpose meter or its metering accessories; and
from its owner or the NPC or its regional
office concerned, as the case may be. (h) The acceptance of money and/or other
valuable consideration by any officer or
RULE III employee of the electric utility concerned
PRIMA FACIE EVIDENCE or the making of such an offer to any such
officer or employee for not reporting the
SECTION 1. Prima facie evidence of illegal use presence of any of the circumstances
of electricity. – The presence of any of the enumerated in subparagraphs (a), (b), (c),

(d), (e), (f), or (g) hereof. of such electric power transmission line/
material shall be prima facie evidence that
A prima facie evidence of illegal use such line/material is the fruit of the offense
of electricity shall be the basis for: (a) in Section 2, Rule II hereof, and such line/
immediate disconnection by the electric material may be confiscated from the person
utility or cooperative to any such person after in possession, control or custody thereof.
due notice; (b) the holding of preliminary
investigation by the prosecutor and the RULE IV
subsequent filing in court of the pertinent INCENTIVES
information; and (c) the lifting of any
temporary restraining order or injunction SECTION 1. Incentive Scheme. – An incentive
which may have been issued against a utility scheme by way of a monetary reward in the
or cooperative. minimum amount of Five Thousand Pesos (P
5,000.00) shall be given to any person who
In order to constitute prima facie evidence shall report to the NPC or police authorities
the discovery of any of the circumstance any act which may constitute a violation of
enumerated in Section 1 hereof, must be Section 2, Rule II hereof, the Department of
personally witnessed and attested to by the Energy (DOE), in consultation with the NPC,
consumer concerned or a duly authorized shall issue the necessary guidelines for the
ERB representative or any officer of the law, proper implementation of this incentive
as the case may be. scheme within thirty (30) days from the
effectivity of R.A. 7832.
An ERB authorized representative is one
who is assigned to conduct testing of electric RULE V
meters or inspection of electric lines and DISCONNECTION OF ELECTRIC SERVICE
facilities of any distribution entity or one who
may be specifically authorized by the duly SECTION 1. Right to Disconnect and its
authorized head of the main or regional ERB Requirements. – The utility or cooperative
offices. concerned shall have the right and authority
to disconnect immediately the electric service
An officer of the law is any person who, by of any person, natural or juridical, without
direct provision of the law or by election or need of a court order or administrative order
by appointment by competent authority, is and deny restoration of the same, in the
charged with the maintenance of public order following circumstances:
and the protection and security of life and
property, such as barangay captain, barangay (a) When the owner/occupant of the house
chairman, barangay councilman, barangay or establishment concerned or someone
leader, officer or member of Barangay acting in his behalf shall have been
Community Brigades, barangay policeman, caught in flagrante delicto doing any of
PNP policeman, municipal councilor, the acts enumerated in Section 1, Rule II
municipal mayor, and provincial fiscal. hereof: Provided, That a written notice
or warning to that effect has been served
SECTION 2. Prima facie evidence of Theft of by the utility or cooperative concerned to
Power Transmission Lines and Materials. – the owner of the house/establishment or
The possession, control or custody of electric his duly authorized representative, prior
power transmission line/material by any to such disconnection.
person, natural or juridical, not engaged in the
transformation, transmission or distribution (b) When any of the circumstances
of electric power, or in the manufacture enumerated in Section 1, Rule II shall

have been discovered for the second The foregoing remedies are without prejudice
time: Provided, That a written notice or to any criminal, civil or administrative action
warning shall have been issued upon the that such person may be entitled to existing
first discovery. laws, rules and regulations.

The written notice or warning referred SECTION 2. Liabilities Under Section 1, Rule
to herein shall be served prior to each II hereof. – If the person has been found by
disconnection and shall indicate the name and final judgment to have violated Section 1,
address of the consumer, consumer account Rule II hereof, he shall be made to pay the
number, date of apprehension, findings of utility or cooperative concerned double the
fact, amount of energy pilfered in kilowatt- value of the estimated electricity illegally
hour, the amount representing the differential used which is referred to in this Section has
billing and the method used in computing differential billing, in addition to the penalty
the differential billing as determined herein, of prision mayor or a fine of Ten Thousand
which shall indicate the following: Pesos (P 10,000.00) to Twenty Thousand
Pesos (P 20,000.00) or both, at the discretion
(a) Computation of the unbilled consumption of the court.
in kilowatt-hour.
(a) If the offense is committed by, or in
(b) The period to be used in computing the connivance with, an officer or employee
differential billing. of the power company, electric utility
or rural electric cooperative concerned,
(c) The latest Inspection Report prior to such officer or employee shall, upon
apprehension. conviction, be punished with a penalty
one (1) degree higher than the penalty
SECTION 2. Deposit. – The utility or provided herein, and forthwith be
cooperative concerned shall immediately dismissed and perpetually disqualified
restore the electric service upon deposit from employment in any public or private
by the person denied the service with the utility or service company and from
utility or cooperative concerned or with the holding any public office.
competent court, as the case may be, of the
amount representing the differential billing. (b) If, in committing any of the acts
enumerated in Section 1, Rule II hereof,
RULE VI any of the other acts enumerated is also
PENALTIES committed, then the penalty next higher
in degree herein shall be imposed.
SECTION 1. Liability of the utility/cooperative.
– If the court finds by final judgment that (c) If, in committing any of the acts
the person has not committed illegal use of enumerated in Section 1, Rule II hereof,
electricity, the amount deposited shall be any of the other acts enumerated is
credited against future billings, with legal also committed by, or in connivance
interest thereon chargeable against the utility with an officer or employee of the
or cooperative. power company, utility or cooperative
concerned, such officer or employee
Likewise, the utility or cooperative shall be shall, upon conviction, be punished with a
made to immediately pay such person double penalty of one (1) degree higher that the
the value of the payment or deposit with legal penalty provided herein, and forthwith
interest, which amount shall be creditable be dismissed and perpetually disqualified
against immediate future billings. from employment in any public or

private utility or service company. (c) If, in committing any of the acts
Likewise, the electric utility concerned enumerated in Section 2, Rule II hereof,
which shall have knowingly permitted any of the other acts enumerated is also
or having knowledge of its commission committed by, or in connivance with an
shall have failed to prevent the same, officer or employee of an electric utility
or was otherwise guilty of negligence in concerned, such officer or employee
connection with the commission thereof, shall, upon conviction, be punished
shall be made to pay a fine not exceeding with a penalty of one (1) degree higher
triple the amount of the “differential than the penalty provided herein, and
billing”, subject to the discretion of the forthwith be dismissed and perpetually
courts. disqualified from employment in any
public or private utility or service
(d) If the violation is committed by company. Likewise, the utility concerned
a partnership, firm, corporation, which shall have knowingly permitted
association, or any other legal entity, or having knowledge of its commission
including a government-owned or – shall have failed to prevent the same,
controlled corporation, the penalty shall or was otherwise guilty of negligence in
be imposed on the president, manager, connection with the commission thereof,
and each of the officers thereof who shall be made to pay a fine not exceeding
shall have knowingly permitted, failed to triple the amount of the “differential
prevent or was otherwise responsible for billing”, subject to the discretion of the
the commission of the offense. courts.

SECTION 3. Liabilities Under Section 2, Rule II (d) If the violation is committed by
hereof. – A person found by final judgment to a partnership, firm, corporation,
have violated Section 2, Rule II hereof, shall association, or any legal entity, including
be meted the penalty of reclusion temporal a government-owned or –controlled
or a fine ranging from Fifty Thousand Pesos (P corporation, the penalty shall be imposed
50,000.00) to One Hundred Thousand Pesos on the president, manager and each
(P 100,000.00) or both, at the discretion of of the officers thereof who shall have
the court. knowingly permitted, failed to prevent
or was otherwise responsible for the
(a) If the offense is committed by, or in commission of the offense.
connivance with, an officer or employee of
the power company, utility to cooperative RULE VII
concerned, such officer or employee BILLINGS AND SURCHARGES
shall, upon conviction, be punished with
a penalty one (1) degree higher than the SECTION 1. Testing of Watt-hour Meter
penalty provided herein, and forthwith Standard Equipment. – The NPC, NEA, and all
be dismissed and perpetually disqualified electric utilities shall submit all their working
form employment in any public or private watt-hour meter standard equipment (which
utility or service company and from are used in the testing of their respective
holding any public office. consumers’ watt-hour meters) for testing
and sealing by the ERB within thirty (30)
(b) If, in committing any of the acts days following the publication of this
enumerated in Section 2, Rule II hereof, Implementing Rules and Regulations and
any of the other acts enumerated is also every year thereafter.
committed, then the penalty next higher
in degree as provided herein shall be The NEA shall likewise furnish the ERB, within
imposed. the same period above prescribed, with
copies of the test reports on the calibration of (d) The highest recorded monthly
the watt-hour meter standard equipment of consumption within four (4) months
all the electric cooperatives. after the time of the discovery.

SECTION 2. Testing of Meters. – All electric 4.2. For cases falling under paragraphs (b),
utilities and cooperatives, as the case may be, (c), and (d), Section 1, Rule III hereof, the
shall cause the calibration of the meters of following methodologies shall be used:
their respective customers at least once every
two (2) years. (a) The result of the ERB test during the
time of discovery;
The said utilities and cooperatives shall
likewise furnish the ERB with copies of the (b) The higher consumption between
test reports within thirty (30) days after each the average consumptions before
calibration. or after the highest drastic drop
in consumption within the five-
SECTION 3. Computation of the Differential year billing period preceding the
Billing. – The differential billing shall be discovery;
determined by multiplying the unbilled
consumption in kilowatt-hour, the period (c) The estimated monthly consumption
covered by the differential billing and the as per report of load inspection
current rate of electricity at the time of conducted during the time of
apprehension. discovery;

SECTION 4. Computation of the Unbilled (d) The highest recorded monthly
Consumption in Kilowatt-hour. – The consumption within four (4) months
unbilled consumption in kilowatt-hour after the time of the discovery; or
may be computed by using the following
methodologies: (e) The highest recorded monthly
consumption within the five-
4.1. For cases falling under paragraph (a), (e), year period preceding the time of
(f), and (g), Section 1, Rule III hereof, the discovery.
following methodologies shall be used:
4.3 For cases falling under paragraph (h),
(a) The estimated monthly consumption Section 1, Rule II hereof, any of the
as per report of load inspection foregoing methodologies may be used,
conducted during the time of whichever is applicable.
discovery;
SECTION 5. Period to be Recovered. – In
(b) The highest recorded monthly determining the period to be recovered
consumption with the five-year under the differential billing, the following
period preceding the time of the shall be considered:
discovery;
(a) When there was a change in the
(c) The higher consumption between customer’s connection, such as change
the average consumption before of meter, change of seal or reconnection,
or after the highest drastic drop or replacement of parts, the period to be
in consumption within the five- recovered under the differential billing
year billing period preceding the shall be reckoned from the time of the
discovery; last inspection;

(b) In the absence thereof, the period to by the utility or cooperative concerned
be recovered under the differential after every inspection, monitoring of meter
billing shall start from the time the installation or apprehension, indicating the
electric service of the person concerned following:
recorded an abrupt or abnormal drop in
consumption; or (a) Date and time of the inspection;

In the absence of both, a maximum of sixty (b) Condition of the meters, instrument,
(60) billing months, up to the time of the transformers and metering installations;
discovery may be used as basis for the
computation: Provided, however, That if the (c) Changes made with the connections
person concerned presents adequate and during the time of the inspection;
indubitable proof showing that the period
to be recovered by the differential billing is (d) Replacement made on the metering
less than sixty (60) billing months, the utility installations, if there is any; and
or cooperative may recompute the amount
of the differential billing based on the (e) Signature over the printed name of
established period for recovery. the consumer or his duly authorized
representative.
The period to be used shall, in no case, be
less than one (1) year preceding the date of The accomplished Inspection Report shall
discovery of the illegal use of electricity. be attested to by the authorized ERB
representative or by the officer of the law, as
In cases where the affected period is less than the case may be.
one (1) year, the utility or cooperative may be
allowed to compute for the differential billing The original copy of the Inspection Report
using one (1) year as the minimum basis for shall be kept by the electric utility or electric
computation. cooperative concerned and shall not be
destroyed without prior authority from the
SECTION 6. Discovery of Prima Facie ERB. A duplicate of the said report shall
Evidence. – The electric utility or rural electric likewise be furnished to the owner/occupant
cooperative, upon discovery of any of the of the establishment concerned or someone
circumstances mentioned in Rule II hereof, of suitable age and discretion residing therein
shall notify in writing the owner/occupant and acting in behalf of the owner/occupant.
of the house or establishment concerned
or someone of suitable age and discretion SECTION 8. Imposition of Surcharges. – An
residing therein and acting in behalf of the electric utility or rural electric cooperative
owner/occupant of the incident. may impose surcharges in addition to the
value of electricity pilfered, on the bills of any
In case the apprehension is witnessed by an consumer apprehended for tampering with
officer of the law and not by an ERB authorized his electric meter/metering facility installed
representative, the tampered electric meter on his premises, as well as other violations
subject of the offense must be placed in a of contract like direct connection, use of
suitable container, properly identified and jumper and other means of illicit usage of
sealed, and shall be opened only for testing electricity found installed in the premises of
in the ERB’s meter laboratory by the duly the consumer. The surcharge for the violation
authorized representative of the Board. of contract shall be collected from and paid
by the consumer concerned as follows:
SECTION 7. Inspection Report. – An
Inspection Report must be accomplished
(a) First apprehension – twenty-five percent issued the same shall submit a report to the
(25%) of the current bill; Supreme Court within ten (10) days from its
issuance, setting forth in detail the grounds or
(b) Second apprehension – fifty percent reasons therefor.
(50%) of the current bill;
RULE IX
(c) Third and subsequent apprehensions RATIONALIZATION OF SYSTEM LOSS
– one hundred percent (100%) of the
current bill. SECTION 1. Caps on Recoverable System
Loss allowed to Private Electric Utilities. –
The electric utility or rural electric cooperative The maximum rate of system loss that the
is authorized to discontinue electric service utility can pass on to its customers shall be as
in case the consumer is in arrears in the follows:
payment of the above-imposed surcharges.
(1) Fourteen and a half percent (14 1/2 %)
RULE VIII effective on February 1996 billing.
ISSUANCE OF RESTRAINING ORDERS OR
WRITS OF INJUNCTION (2) Thirteen and one fourth percent (13
1/4%) effective on February 1997 billing.
SECTION 1. Issuance of Writ of the
Injunction. – Unless there is a prima facie (3) Eleven and three fourths percent (11
evidence that the disconnection was made 3/4%) effective on February 1998 billing.
evident bad faith or grave abuse of authority,
no writ of injunction or restraining order shall (4) Nine and a half percent (9 1/2%) effective
be issued by any court against any utility or on February 1999 billing.
cooperative exercising the right and authority
to disconnect electric service as provided in SECTION 2. Automatic Cost Adjustment
these Rules. Formula. – Each and every utility shall file
with the ERB, on or before September 30,
SECTION 2. Filing of Bond/Counterbond. – A 1995, an application for approval of an
writ of injunction or restraining order issued amended Generation Charge or Power Cost
by a court in the absence of evident bad Adjustment formula that would reflect the
faith or grave abuse of authority on the part new system loss cap to be included in its
of the utility or cooperative concerned shall schedule of rates.
be effective only when the affected person/
consumer files a bond with the court in the The automatic cost adjustment clause of
form of cash or cashier’s check equivalent to every utility shall be guided by the following
the differential billing, penalties and other formula:
charges in cases of illegal use of electricity.
Such writ of injunction or restraining order Generation Charge
shall automatically be refused or, if already
granted, shall be dissolved upon the filing Subsidizing consumption shall be charged a
by the utility or cooperative concerned of a generation charge per kWh equal to:
counterbond similar in form and amount as
that above required. A x 1 - E
B-(C+D) 1 – FT
SECTION 3. Report to the Supreme
Court. – Whenever a writ of injunction or
restraining order is granted, the court which

Where: (b) Twenty percent (20%) effective on
February 1997 billing.
Cost of electricity purchased and
generated for the previous month (c) Eighteen percent (18%) effective on
A = less revenue from subsidized kWh on February 1998 billing.
generation charge as applicable

B =
Total kWh purchased and generated for (d) Sixteen percent (16%) effective on
the previous month
February 1999 billing.
The actual system loss but not to exceed
the maximum recoverable rate of system
C = loss in kWh plus actual company use in (e) Fourteen percent (14%) effective on
kWh but not to exceed 1% of total kWh February 2000 billing.
purchased and generated
D = kWh consumed by subsidized consumers SECTION 5. Automatic Cost Adjustment
Applicable base cost of the amount Formula. – Each and every cooperative shall
E = incorporated into their basic rate per
kWh file with the ERB, on or before September
FT = Franchise tax rate
30, 1995, an application for approval of an
amended Purchased Power Adjustment
SECTION 3. Fixing the Level and Effectivity of Clause that would reflect the new system loss
the New System Loss for Utility. – Each and cap to be included in its schedule of rates.
every utility shall file with the ERB, before the
end of the fourth year following the effectivity The automatic cost adjustment of every
of these Rules, an application for the purpose electric cooperative shall be guided by the
of determining the following: following formula:

(a) Whether the caps fixed shall be reduced Purchased Power Adjustment Clause
further which shall in no case be lower
than nine percent (9%) after taking (PPA) = A - E
into account the viability of the private B – (C + D)
electric utilities and the interest of the
consumers; Where:

(b) The date of the effectivity of the new Cost of electricity purchased and
A =
generated for the previous month
caps; and
Total kWh purchased and generated for
B =
the previous month
(c) The permissible levels of recovery of The actual system loss but not to exceed
system loss in areas that may be added to the maximum recoverable rate of system
the franchise area of the private electric C = loss in kWh plus actual company use in
kWh but not to exceed 1% of total kWh
utility after the date of effectivity of R.A.
purchased and generated
No. 7832.
D = kWh consumed by subsidized consumers

SECTION 4. Caps on System Loss Allowed to Applicable base cost of power equal to
E = the amount incorporated into their basic
Rural Electric Cooperatives. – The maximum rate per kWh.
rate of system loss that the cooperative can
pass on to its customers shall be as follows: SECTION 6. Fixing the Level and Effectivity of
the New System Loss Cap. – Each and every
(a) Twenty-two percent (22%) effective on cooperative shall file with the ERB, before the
February 1996 billing. end of the fifth year following the effectivity
of these Rules, to determine the following:

(a) Whether the caps fixed shall be reduced The utility or cooperative shall not accept
further which shall in no case be lower payment from the consumer during the
than nine percent (9%) after taking pendency of the case for the recovery
into account the viability of the electric of pilferage loss, unless so provided in a
cooperatives and the interest of the compromise agreement duly executed by the
consumers; parties and approved by the court.

(b) The date fixed for the effectivity of the SECTION 2. The full amount recovered by the
new caps; and utility or cooperative under the preceding
section shall be reflected as a reduction in the
(c) The permissible levels of recovery of customer’s electric bill through the automatic
systems loss in areas that may be added cost adjustment formula abovementioned,
in the area of coverage of the rural the application of which shall be verified and
electric cooperative after the date of the confirmed by the Board through an Order.
effectivity of R.A. No. 7832.
RULE XI
SECTION 7. Authority of the Energy Regulatory INFORMATION DISSEMINATION
Board. – Nothing in this Rule shall impair the
authority of the ERB to reduce or phase out SECTION 1. Information Dissemination. –
technical or design losses as a component of The private electric utilities, the rural electric
system losses. cooperatives, the NPC, and the National
Electrification Administration (NEA) shall,
RULE X in cooperation with each other, undertake
RECOVERY OF PILFERAGE LOSSES vigorous campaign to inform their consumers
of the provisions of the Implementing Rules
SECTION 1. Submission of Report. – A utility and Regulations, within sixty (60) days from
or cooperative which recovers any amount of the effectivity thereof and at least once a
pilferage losses shall submit to the ERB, within year thereafter, and to incorporate a faithful
thirty (30) days from said recovery, a written condensation of said provisions in the
report under oath, which shall contain the contract with new consumers.
following:
RULE XII
(a) The fact of recovery REPEAL AND SEPARABILITY

(b) The date of recovery SECTION 1. Repeal and Separability. – All
existing rules, regulations or order or any
(c) The name of consumer concerned
parts thereof inconsistent with these Rules
(d) The amounts recovered including the are hereby repealed, amended or modified
amounts resulting from compromise accordingly. If any part or provision of these
agreement and surcharges imposed, if Rules or declared unconstitutional or illegal,
any the other parts or provisions shall remain
valid.
(e) The amount of pilferage loss claimed
RULE XIII
(f) The explanation for the failure to recover EFFECTIVITY
the whole amount claimed
(g) Itemized expenses incurred, if there is SECTION 1. Effectivity. – These Rules shall take
any effect fifteen (15) days after its publication in
two newspapers of general circulation in the
(h) The amount passed to the consumer country.
Pasig City, July 7, 1995 BAYANI V. FAYLONA
Member
REX V. TANTIONGCO
Chairman ARNALDO P. BALDONADO
Member
OSCAR E. ALA
Member EDWARD C. CASTAÑEDA
Member
ERB RESOLUTION NO. 95-21
STANDARD RULES AND REGULATIONS GOVERNING THE OPERATION OF ELECTRIC POWER SERVICES

WHEREAS, the rules and regulations SECTION 2. Applicability. – The following

governing the operation of public services, rules and regulations shall cover all electric
particularly the electric power services are power utilities under the supervision, control
embodied in Revised Order No. 1 which and jurisdiction of the Energy Regulatory
was approved by the then Public Service Board, as applicable.
Commission (this Board’s predecessor office)
way back on November 27, 1941; The term “electric utility” shall include every
person, whether natural or juridical, their
WHEREAS, economic conditions have, lessees, trustees or receivers, as well as
since that time, changed, not to mention municipalities, provinces and cities engaged
the technological developments that have in the operation of electric power service
occurred in the electric power industry; in the Philippines, for hire or compensation,
with general or limited clientele, whether
WHEREAS, this Board has considered the permanent or occasional.
advisability of revising the said rules and
regulations to make them more responsive SECTION 3. Observance. – Every electric
to current conditions and needs in the said power utility shall observe and comply strictly
industry; with all the terms and conditions prescribed
in its Certificate of Public Convenience and
NOW, THEREFORE, be it resolved, AS Necessity (CPCN), rules and regulations,
THIS BOARD HEREBY RESOLVES, to amend memoranda, orders and circulars of the
Revised Order No. 1, particularly the rules Board, the laws of the Philippines, provincial
and regulations therein pertaining to the resolutions, city or municipal ordinances and
operation of electric power services, and any other rules or regulations issued by any
to prescribe, AS THIS BOARD HEREBY competent authority, and in case of a grantee
PRESCRIBES, the following: of franchise, with the terms and conditions
thereof.
SECTION 1. Title. – This Resolution shall be
known as the Standard Rules and Regulations SECTION 4. Service. – Every electric power
Governing the Operation of Electrical Power utility under the supervision, control, and
Services. jurisdiction of the Board shall operate,
maintain, and provide safe, reliable, adequate,
efficient and continuous electric service.
610
ELECTRIC POWER INDUSTRY VOLUME 4
SECTION 5. Information and Assistance to electric utility to cause, allow or in any other
Customers. – Every electric utility shall, upon manner help or consent to the registration
request, give its customers, copy furnished in its name, fictitiously, surreptitiously or
ERB, all information and assistance pertaining otherwise of any or in any other manner, help
to its service in order to provide said or consent to the operation of said equipment
customers reliable, efficient and economical under its CPCN.
service.
SECTION 10. Construction, Operation and
SECTION 6. Service Connection. – It shall Maintenance of Electric Plant. – The electric
be mandatory for the electric utility to plant which includes:
extend electric service after customer’s
full compliance with the electric utility’s (a) Power Plant
requirements.
(b) Transmission and Distribution Lines
The connection of the electric utility’s
service lines and meters with the customer’s (c) Substations
premises shall be free of charge. The point of
service connection shall be designated upon (d) Overhead system, poles, lines,
agreement by the electric utility and the transformers, etc.
customer.
(e) Underground systems, including power
The relationship of the electric utility and and communication cable manholes,
the consumers shall be governed by an conduits, etc.
application/service contract containing the
terms and conditions duly approved by the (f) Street Lighting System
Board.
(g) Service wires and attachments
It shall be unlawful for any electric utility
to give undue preference or make unjust (h) Meters and instruments
discrimination in its service.
(i) Control and communication facilities
SECTION 7. Commercial or Business Name. – (SCADA)
No electric utility shall adopt a commercial or
business name without first securing approval shall be constructed, installed, operated and
of the Board. maintained in accordance with the provisions
of the Philippine Electrical Code and the rules
SECTION 8. Authorized Equipment. – Every and regulations that may be issued by the
electric utility shall install in its plant only Board in relation thereto. In the absence
the generating or producing unit(s) and/ of applicable provisions in the Philippine
or distribution equipment authorized in its Electrical Code, the provisions of the U.S.
CPCN or those that may be subsequently Bureau of Standard National Electrical Safety
authorized by the Board. Code shall apply.

No electric utility shall increase, substitute SECTION 11. Equipment at Generating
or withdraw from the service any of its Station. – Every electric utility shall install
authorized equipment and/or machinery and maintain at its generating station(s) the
without the prior authority from the Board. following:

SECTION 9. Fictitious Registration of (1) Watt-hour meter(s) to record the kilowatt-
Equipment. – It shall be unlawful for any hours generated by each generating
station. SECTION 12. Equipment at Substations. –
Every electric utility taking power from a
(2) Watt-hour meter(s) to record the transmission line shall install in its authorized
kilowatt-hours purchased from other territory at the receiving end:
sources.
(1) Watt-hour meter(s) to register the total
(3) Indicating or graphic wattmeters to kilowatt-hours delivered.
indicate or record the load in kilowatts
of each generating unit at any particular (2) Indicating or graphic wattmeter or meters
time. to indicate or record the load.

(4) Either indicating or graphic wattmeters (3) Voltmeter(s) to indicate the potentials of
to indicate or record the load in kilowatts each phase of the circuit(s) feeding the
at any particular time of the territory territory.
served.
(4) Ammeter(s) to indicate the current in
(5) Voltmeter(s) to indicate the potentials of each phase of the circuit(s).
the buses. The voltmeter(s) installed in
Alternating Current (AC) stations shall be (5) And other instruments, safety control
so connected as to indicate the potential and devices that may be necessary to
on each phase. determine the demand characteristics
and the voltage control in the authorized
(6) Ammeter(s) to indicate the current in territory.
each generating unit and each feeder.
The ammeter(s) installed at AC stations SECTION 13. Testing of Station and Substation
shall be so connected as to indicate the Meters. – All station and substation meters
current in each phase. and instruments used for billing purposes shall
be inspected by the authorized representative
(7) Frequency meter(s) to indicate the of the Board at least once every two years for
frequency in AC stations of more than testing purposes.
100 kw capacity.
Each instrument shall at all times be
(8) Power factor meter or VAR meter for AC accompanied by a test report issued by the
stations with generating units of over 100 Board showing the findings and corrections
KVA capacity each. made at various readings and the date of last
calibration.
(9) Automatic voltage regulator for central
stations of 251 KW capacity or more. SECTION 14. Watt-hour Meter Standard. –
Every electric utility furnishing metered
(10) Over current relay, under/over voltage electric service shall maintain, to check
relay, synchronizing device, reverse customer’s watt-hour meter, at least one
power relay and under/over frequency watt-hour meter standard which shall be
relay. calibrated by the Board at least once a year.

(11) And other instruments, safety devices SECTION 15. Portable Indicating and
and controls that may be necessary to Recording Voltmeters. – Every electric utility
determine the operating characteristics shall provide itself with at least one portable
and for voltage control and safe operation indicating voltmeter. Utilities serving more
of the plant. than 500 customers further required to have

at least one recording voltmeter which shall SECTION 17. Standard Frequency and
be placed in continuous service at its power Allowable Variation. – Every electric utility
plant or office. supplying AC shall adopt the standard
frequency of sixty (60) Hertz and shall
SECTION 16. (a) Nominal Voltage and Voltage maintain said frequency reasonably constant
Regulation. – Every electric utility shall adopt so that its variation shall not exceed one (1)
and file with this Board a standard voltage as Hertz above or below the standard frequency,
its nominal voltage for its entire secondary at all times. Infrequent and unavoidable
distribution systems. The voltage across the fluctuations of short duration due to station
main service entrance switch, as installed for operation or caused by the elements or by
each customer or group of customers, shall frequency variation caused by source(s) not
be maintained as follows: within the control of the utility shall not be
considered a violation of this Section.
(1) For service rendered under a lighting
contract or primarily for lighting SECTION 18. Log Book. – (a) E v e r y
purposes, between sunset and 11:00 electric utility shall keep a log book in its
o’ clock p.m., the variation in voltage generating stations and shall record therein:
shall not be more than five percent
(5%) plus or minus of the nominal (1) Time of starting and stopping of each
voltage adopted. The voltage generating unit.
regulation shall not exceed 6%.
(2) Time of switching on and off of each
(2) For service rendered under a power feeder.
contract or primarily for power
purposes, the voltage variation shall (3) Daily reading of watt-hour meter.
not exceed ten percent (10%) above
or below the nominal voltage at any (4) At least quarter hourly reading
time when the service furnished. of wattmeters, voltmeters and
ammeters during the three
(3) A greater variation of voltage than consecutive hours of heavy load
that specified above may be allowed each day, and at least hourly readings
in case of emergency service or in a during the remainder of the day; also
certain area where the customers are the time and magnitude of station
widely scattered and the business peak load each day.
done does not, in the judgment
of the Board, justify close voltage (5) Interruptions of service, indicating
regulation. the time, duration, extent, and cause
of each interruptions.
(b) Exceptions. – Variations in voltage in
excess of those specified, caused (1) by (6) The daily consumption of lubricating
the operation of power apparatus on oil and fuel (bunker fuel oil; special
customer’s premises which necessarily fuel oil; ADO etc.). Fuel waste shall
requires large starting current, (2) by the likewise be indicated in the logbook.
action of the elements, and (3) infrequent
and unavoidable fluctuation of short (b) Every electric utility taking power from a
duration due to station operation, shall transmission line shall keep a log book at
not be considered a violation of this its receiving end (substation) showing:
section.


(1) Time of switching on and off of each there are two or more authorized schedules
feeder. of rates applicable to a customer’s condition,
the electric utility should accordingly advise
(2) Daily readings of watt-hour meter(s) in writing said customer and apply the most
to show kilowatt-hours delivered. advantageous schedule of rates.

(3) At least quarter-hourly reading of SECTION 22. Deposits and Charges. – All
load during the three consecutive bill deposit from all residential and non-
hours of heaviest load each day, residential customers to guarantee payment
and at least hourly reading during of bills shall be required of new and/or
the remainder of the day; also the additional service. The amount of the bill
time and magnitude of maximum deposit shall be equivalent to the estimated
demand. monthly billing.

(4) At least quarter-hourly readings of A meter deposit equivalent to one-half (½)
the voltmeters and ammeters of each of the current cost of the electric meter and
feeder during the three consecutive other equipment appurtenant thereto shall
hours of heavy demand each day and be required.
at least hourly readings during the
remainder of the day. The bill and meter deposits which shall be
refunded within one month from termination
(5) Interruptions of service, indicating of service shall bear interest at the rate of
the time, duration, extent, and cause ten percent (10%) per annum, refundable
of each interruption. on customer’s request upon termination of
service provided that the metering facilities
(6) Log book shall be signed by the are returned in good condition, and all
person in charge and shall not be accounts in the name of the customer shall
removed from the switchboard site have been paid. The amount of refund shall
or room. be based on the customer’s copy of the
receipts or the utility’s record thereof.
SECTION 19. Poles, Sag of Wires. – No pole
located on or near a public place shall have SECTION 23. Extension of Lines and Facilities.
a one-way sweep exceeding three percent – In the event it would require, in order to
(3%) of its total length and all horizontal wires serve a prospective customer, to extend lines
attached to it shall be pulled up so that their and/or install additional facilities other than
sag shall not be greater than those allowed by service drop, the electric utility as franchise
the Philippine Electrical Code (three percent holder shall extend the lines or install the
(3%) of the distance between poles). facilities at its own expense, inasmuch as said
assets will form part of its rate base.
SECTION 20. Identification of Poles, Tower, etc.
– Poles, towers, structures, and transformers SECTION 24. Location and Maintenance of
shall be marked and numbered by the electric Electric Utility’s Equipment. – The electric
utility to facilitate identification. utility shall have the right, if necessary to
construct its poles, lines and circuits and to
SECTION 21. Advice to Customers on Rates place its transformers and other apparatus
Applicable. – A copy of the rate schedule on the property or within the buildings of the
and the terms and conditions of service shall customer, at a point or points convenient for
be furnished to the new customers. Existing such purpose, and the customer shall further
customers shall be informed of any changes grant the right to the use of suitable space
in new rates through print/media. Where for the installation of necessary metering
equipment in order that such equipment will during the process of construction.
be protected from damage by the elements,
or through the negligence or deliberate acts SECTION 26. Service Entrance. – Service
of any person(s). When the delivery of energy entrance is defined as that portion of the
for separate buildings or premises is desired/ customer’s wiring including all necessary
necessary, a separate contract between conduits, cables and accessories which
customers and utility shall be required for extends from the customer’s main entrance
each point of delivery. switch and/or electric utility’s metering
equipment to and including the point of
In case the public utility, pursuant to this attachment to the electric utility’s service
section, erects poles and lines on the drop on the outside of the building. It is
property of a customer in order to be able preferred that there be only one service
to service him, it shall, upon payment of entrance for each building.
just compensation to the latter, also have
the right to connect to said poles and lines If service entrance cable is not used, service
any neighbor or neighbors of said customer, entrance conductors shall be contained
who may thereafter also apply for service and be properly installed in weatherproof
connections and who cannot otherwise be armored cable, rigid conduit or type BXL
connected or reached. flexible conduit.

SECTION 25. Service Drop. – An electric The outside terminal of the customer’s
service drop is defined as the wires with the service entrance must be located so as to
necessary supporting structure between the enable connection to the service drop at a
distribution lines of the electric utility and the point nearest to the electric utility’s existing
service entrance. or proposed electric service facilities.

All connections and disconnections of service Service entrance (cable or conduit) shall
shall be made by the electric utility. be exposed on the outside of the building
and shall be in one continuous run from the
Only one service drop shall be installed for service drop terminal to the meter, except for
each individual building, except as allowed in large installations whose single or combined
the Philippine Electrical Code, duly certified kilowatt demand has been determined by
by a government authority. the electric utility to require installation of
instrument transformers, in which case the
The service drop shall normally be connected service entrance may be concealed. The
at the electric utility’s pole carrying electric instrument transformers and metering
service facilities nearest the applicants channel, which are part of the metering
premises and shall not exceed thirty (30) facilities, are to be furnished by the electric
meters in length. Length of service drop is utility. The line side of the service entrance
defined as the distance from the pole to the must be separated from the load side as
nearest point of attachment or connection. abovementioned. All conductors in the line
side of the service entrance including the
The service bracket shall be supplied and neutral wire shall be installed in one conduit,
installed by the electric utility in all cases rigid or flexible (type BXL only). The service
except where it is to be attached to a entrance shall terminate near the point of
building of masonry construction. In case connection to the service drop with no less
of attachment to masonry construction, the than two (2) feet of wire extended outside
contractor shall secure the bracket which the weatherhead.
is issued by the electric utility and install it

In cases of “accessoria” wiring, the service underground water system in accordance
entrance cable or conduit shall be installed with the PEC. Driven grounds or their
in the same manner as for other building equivalent shall be accepted only where an
particularly emphasizing the fact that the underground water system is not available in
entrance cable or conduit be exposed or seal- or near any wired building on the premises.
type “accessoria” boxes without fuses shall
be used for each separate service connection SECTION 30. Meter Installations. – All
or group of service connections. metering equipment shall be furnished
and installed by the electric utility. Current
Proper fittings shall be used in joining the transformer cabinets and gang mounting
cable or conduit to the junction box. channels where required will be furnished
by the electric utility and installed by the
The electric utility shall not require existing applicant at a location specified by the electric
open wiring service entrance to be changed utility. The applicant shall furnish and install
or replaced with service entrance cable or meter boards, where required.
conduit installation except when there is
remodeling of existing installation and/or The meter must be installed in a clean place
in cases of proven current diversion in the free from vibration and where it will be easily
customer’s premises. accessible for reading and testing. Under no
condition should meters be located behind
Service entrance shall meet the requirements doors or where they can be easily broken
of the Philippine Electrical Code (PEC) or local or jarred by moving furniture or equipment.
and national government ordinances. Meters shall be located on the outside wall of
the building or private pole and shall not be
SECTION 27. Service Switches or Breakers. – A more than three (3) meters nor less than 1.52
safety switch or circuit breaker duly approved meters mounting height from the surface on
by the authorized government agency must which one would stand to repair or inspect
be installed on the load side of the meter. All the meter.
safety switches must be externally operated
with fuses electrically “dead” when the switch Generally, meters shall be installed on the
is in the “off” position. ground floor in suitable space and on a
suitable mounting for large commercial and
SECTION 28. Underground Service. – apartment buildings. However, upon request
by the customer, the electric utility may allow
(a) Residential – Underground residential location of meter (s) other than the ground
service, including the pole on which floor provided that meter(s) are to be installed
said service is terminated, shall be and located at a common place accessible
provided, installed and maintained by to electric utility’s personnel for inspection,
the customers in accordance with the reading and maintenance purposes at
specification(s) prescribed by the PEC. anytime and a main check meter installed at
a location specified by the electric utility to
(b) Commercial and Industrial – Installation measure the total electric consumption of
of any underground facilities shall be the building. All service entrance and other
subject to the prior agreement between electrical facilities after the main check meter,
the customer and the electric utility. except electric utility meters, shall be owned
and maintained by the customer. Space and
SECTION 29. Grounding. – In case of mounting shall be adequate to accommodate
three (3)-wire single-phase service, the all metering facilities. Individual cutouts and
neutral conductor of each service entrance /or switches shall be at least one (1) meter
shall always be grounded to an existing of clear space in front of the meter(s). The
electric utility shall be consulted prior to the thereon the date of reading, the reading
wiring installation in large buildings. made and the total consumption expressed
in units of service used, as read by the meter
The applicant shall secure from the electric reader, and the signature or initials of the
utility upon presentation of necessary meter reader.
Electrical Wiring Permit, detachable meter
sockets. Meter sockets shall be installed in The meter and metering equipment are the
accordance with electric utility specifications. sole property of the electric utility and any
When the demand of an installation is more changes in their location or arrangements
than forty (40) kilowatts or where service shall be made by the electric utility.
entrance is larger than AWG 4/0 or 107.22
mm2 wire, the meter installation may include SECTION 33. Testing and Sealing of Meter
instrument transformer furnished by the by the Board. – No meter shall be placed in
electric utility. For all installations of forty (40) service unless it has been tested, certified
kilowatts and over, the electric utility shall be and sealed by the Board.
consulted before construction is started.
The ERB seal attached to the meter by the
SECTION 31. Applicability of the Philippine Board is a warranty (1) that the meter is an
Electrical Code. – The foregoing provisions of acceptable or accepted type and (2) that
Section 25 to 30 should not be in conflict with it operates within the allowable limits of
existing provisions of the Philippine Electrical tolerance.
Code otherwise the latter rules shall apply.
SECTION 34. Test of Customer’s Meter by
SECTION 32. General Information on the Electric Utility. – Every electric utility
Metering. – Every electric utility shall inform shall, upon request of a customer, make
its customers of the manner in which meters a test free of charge of the accuracy of the
are read, either by printing on its bills for each meter installed in his premises. A written
service, a description of the method used report giving the result of such test shall be
in reading meters, by distributing booklets furnished the customer and the Board.
describing such method, or in any other
suitable manner. SECTION 35. Watt-hour Meter Accuracy
Requirements. –
Each service meter shall indicate clearly the
units of service for which charge is made to (a) No watt-hour meter that has an incorrect
the customer. In case the dial reading of the register constant, gear ratio, register ratio
meter must be multiplied by a constant to or dial train, or that be allowed to remain
obtain the units of service, the constant to be in service without adjustment and
applied shall be clearly marked on the face correction. Register constant is the factor
or dial of the meter. Where the quantity of used in conjunction with the register
service is determined by calculation from the reading in order to ascertain the total
reading of the meter, the electric utility shall amount of electrical energy in kilowatt-
upon request supply the customer with such hours that has passed through the meter.
information as will show clearly the method Watt-hour constant is the registration of
of determining the units of service rendered. one revolution of the rotating element
expressed in watt-hours. Gear ratio is
Every electric utility shall instruct its meter the number of revolutions to the rotating
reader when reading periodically the meter element for one revolution of the first
installed in the premises of a customer, dial pointer. Register ratio is the number
to leave in such premises a card, showing of revolutions of the wheel meshing
with the worm or pinion on the rotating
element for one revolution of the first dial one hundred percent (100%) of the rated test
pointer. “Dial train” is the term applied amperes of the meter.
to all the gear wheels and pinions used to
interconnect the dial pointers. A meter For normal load the following percentage
in service “creeps” when, with all load of the several classes of full-connected
wires disconnected, the moving element installations may be used:
makes one complete rotation in twenty
Percent
minutes or less. Residence and apartment lighting 25
Elevator Service 40
(b) All watt-hour meters before being placed
Factories (individual drive), theaters, club,
in service, must be adjusted as closely as hallways, entrance, and general store lighting
60
possible to the condition of zero error.
Restaurants, pumps, air compressors, ice
The tolerance of plus or minus two machines, and moving picture theaters
70
percent (± 2%) is hereby fixed to allow Sign and window lighting, blowers and
100
for necessary variations, but watt-hour battery charging
meters shall not be adjusted merely to
be within this tolerance. SECTION 37. Record of Meter. – Every
electric utility shall keep an adequate record
(c) No watt-hour meter that has an error in of each meter showing (1) make, type and
registration of more than plus or minus identification marks and/or number of meter,
three percent (± 3%) at any load shall be (2) names and addresses of customers,
allowed to remain in service. dates when meter installed or removed, (3)
adjustment or repair made, and (4) Board
SECTION 36. Determination of Average Error. certification dates.
– In tests made by the Board or the electric
utility, the average error of a meter shall be SECTION 38. Register of Assets. – Every
determined by the following method: electric utility shall keep a comprehensive
register of assets, indicating installation date,
Ea = 0.3ELL + 0.7EFL cost, condition and refurbishment.

Where Ea is the average Error, ELL is the error SECTION 39. Schedule of Rates. – Every
at light load, EFL is the error at full load. electric utility shall be strictly governed in its
charges by the schedule of rates prescribed
Provided, however, That at the time request by the Board and shall not change, alter, or
of the customer or in referee cases, this in any manner modify the same without prior
method may be modified by admitting tests authority of the Board and shall post a copy
at a third load, if, and when in the opinion of thereof in a conspicuous place at its office.
the Board, such load is more representative
of the ordinary use of the meter, in which SECTION 40. Service Charges. – The service
case, the average error shall be determined charges to be collected by the electric utility
as follows: shall be subject to the prior approval of the
Board.
Take one-fifth (1/5) of the algebraic sum of
(1) error at the light load, (2) three times the SECTION 41. Use of Energy by Customers. –
error at normal load, (3) the error of full load. The rate schedule for electric energy of each
electric utility are classified by the character
In both methods, light load shall be taken of use of such energy.
from five (5) to ten (10) percent of the rated
test amperes of the meter, and full load, not No addition to the load connected to the
less than sixty percent (60%) nor more than service connection, transformers, meters
and devices supplied by the electric utility for customer’s receipt of the said bills, unless a
each customer having a definite capacity, shall longer period is allowed. The word “month”
be allowed except by written consent of the as used in herein and in the rate schedule
electric utility. This restriction only applies is hereby defined to be the elapsed time
to utilities whose terms and conditions of between two succeeding meter readings
service contract forms between customer approximately (30) days apart. In the event
and operator imposes no such restriction. of stoppage or the failure of any meter to
register the full amount of energy consumed,
SECTION 42. Bills for Metered and Flat Rate the customer shall be billed for such period
Service. – Bills to metered service customers on an estimated consumption based upon his
shall be rendered at reasonably regular average use of energy for the immediately
intervals and shall show at least the date upon preceding six-month period of like use or the
which the meter was last read, the reading of registration of a check meter subject to the
the meter on that date, the number and kinds approval of the Board, except when the utility
of units supplied, reference to the schedule of and the customer do not agree on such bill, in
rates applicable and the amount of the bill. which case, the Board shall resolve the same.

Bills to flat rate service customers shall be SECTION 44. Receipts. – Every electric utility
rendered at reasonably regular intervals and operator shall issue to its customers receipts
shall show the period for which the bill is which shall be in the form or model prescribed
rendered, reference to the schedule of rates by the Board: Provided, however, That the
applicable and the amount of the bill. The electric utility operator must submit a sample
number and kinds of units for which a flat of said receipts for the approval of the Board
rate bill is rendered shall also be known on before adopting the same in its service.
the bill.
It shall safely keep the duplicate or office stub
There shall be shown on the bill such of the receipts used and shall not destroy
additional factors other than those contained them within five (5) years without authority
in the schedule of rates, as may be necessary from the Board.
in computing the bill. It shall be indicated on
each bill that copies of the schedules of rates SECTION 45. Electric Utility’s Liability. – Every
applicable will be furnished by the electric electric utility shall use reasonable diligence
utility upon request. in furnishing a regular and uninterrupted
supply of energy, but in case such supply
SECTION 43. Payment of Bills. – Every electric should be interrupted or should fail by
utility may require that bills for service may be reason of an act of God, the public enemy,
paid within a specified time after rendition. accidents, strikes, riots, legal process,
When the billing period covers a month or national or local interferences, failure of
more, the minimum time allowed will be ten supply from generation source for any reason
(10) days unless a longer period is specified or extraordinary repairs/replacements, the
and upon expiration of the specified time, electric utility shall not be liable for damages.
service may be discontinued for the non-
payment bills. The electric utility shall not be liable to the
customer for any loss, injury or damage
Bills will be rendered by the electric utility resulting from the customer’s use of
to the customer monthly in accordance with equipment or from the use of energy of the
the applicable rate schedule. Said bills are electric utility from the connections of the
payable to collectors, collection office of the electric utility’s wires with the customer’s
area where the customer resides or at its wire and appliances, in case of negligence on
authorized banks within ten (10) days after the part of the customer.
The electric utility shall provide and maintain Service may be discontinued for the
in proper operative condition the necessary nonpayment of bills as provided for in Section
line or service connections, transformers 43 hereof, provided that a forty eight (48)-
(when same are stipulated by the conditions hour written notice of such disconnection has
of the contract between the parties thereto), been given the customer: Provided, however,
meters and other apparatus which may be That disconnections of service shall not be
required for the proper measurement of and made on Fridays, Saturdays, Sundays and
protection to its service. All such apparatus official holidays: Provided, further, That if at
shall be and remain the property of the the moment of disconnection is to be made,
electric utility. the customer tenders payment of the unpaid
bill to the agent or employee of the electric
SECTION 46. Authority to Enter Customer’s utility who is to effect the disconnection,
Premises. – The customers should allow the the said agent, or employee shall be obliged
employees and/or representatives of the to accept tendered payment and issue a
electric utility to enter their premises for the temporary receipt for the amount and shall
purpose of inspecting, installing, reading, desist from disconnecting the service.
testing, removing, replacing, or otherwise
disposing of its apparatus and property, The electric utility may discontinue service
and/or removing the electric utility’s entire in case the customer is in arrear(s) in the
property in the event of the termination of payment of bill(s). Any such suspension
the contract for any cause. of service shall not terminate the contract
between the electric utility and the customer.
Only authorized employees of the electric
utility showing proper identification card shall In case of arrear(s) in the payment of bill(s),
be allowed to make any external adjustments the electric utility may discontinue the
of any meter or any internal or external service notwithstanding the existence of the
adjustments of any other pieces of apparatus customer’s deposit with the electric utility,
owned by the electric utility. which will serve as guarantee for the payment
of future bill(s) after service is reconnected.
SECTION 47. Suspension or Change of Service.
– Every electric utility shall serve notice to the SECTION 49. Reconnection of Service. –
public in advance of any proposed suspension The electric utility shall reconnect service
or change to be made in the service that after the customer has settled his arrears/
would affect the utilization, efficiency, and/ obligations with the electric utility and/or
or safety of any installation, appliances, complied with government and the electric
equipment, etc., used by any customer. In utility’s requirements.
case such suspension exceeds twenty-four
(24) hours, the utility should first obtain SECTION 50. Investigation of Complaints. –
authority therefor from the Board. Every electric utility shall, within twenty-four
(24) hours, make a prompt investigation of all
SECTION 48. Refusal or Discontinuance of complaints referred to them concerning the
Service. – An electric utility shall not refuse service.
or discontinue service to an applicant, or
customer, who is not in arrears to the electric SECTION 51. Investigation, Inspection,
utility, even though there are unpaid charges Examination and Test. – The Board, may at any
due from the premises occupied by the time, conduct an inspection and investigation
applicant, or customer, on account of unpaid of the operation of any electric utility or
bill of a prior tenant, unless here is evidence an examination and test of any equipment
of conspiracy between them to defraud the operated for electric service. The refusal,
electric utility. obstruction or hindrance by the electric utility
or any of its employees to the investigation industry. Each electric utility shall conform
or inspection of its service or examination or its depreciation accounts to the rates so
test of any of its equipment shall constitute a determined and fixed.
violation hereof.
SECTION 55. Submission of Monthly Statistics
SECTION 52. Accident Report. – Every electric and Annual Report. – Every electric utility shall
utility shall keep a record, in chronological submit to the Board on or before the 30th day
order, of all accidents that may occur in of each month the statistics on electric power
connection with its operation, their nature, operations and automatic adjustment clause
causes and consequences, and the measures computations (power costs adjustment,
taken to avoid their recurrence. A detailed fuel cost adjustment, currency exchange
report of all accidents shall be submitted to rate adjustment and other cost adjustments
the Board on or before the tenth (10th) day approved by the Board) together with the
of each month. Accidents which result in supporting documents corresponding to
death or physical injuries shall be reported to the previous month in accordance with the
the Board within twenty four (24) hours from prescribed form.
their occurrence.
Likewise, the electric utility shall file with the
SECTION 53. Accounts. – Every electric utility Board on or before May 31st of every year a
operator shall keep such accounts, books and detailed report of its finances and operations
other records as are necessary to afford an corresponding to the previous year, in
intelligent understanding of its business. If accordance with the form prescribed by the
a uniform system of accounting is prescribed Board. Said annual report shall be based on
by the Board for the electric industry, the audited financial statement.
said system shall be observed. Every electric
utility shall keep its book of accounts by the SECTION 56. Sworn Statement. – Each
double entry method. electric utility shall, within thirty (30) days
immediately following the date of publication
SECTION 54. Depreciation. – Every electric of this “Standard Rules and Regulations
utility shall set aside annually from its earnings Governing the Operation of Electric Utilities”
an amount for depreciation purposes which or in the case of a new electric utility, within
shall be subject to revision by the Board and thirty (30) days after the granting of a CPCN
shall keep said amount in a depreciation fund in its favor, submit to the Board the sworn
which shall be spent only in accordance with statement required in paragraph (i) of
Commonwealth Act No. 146, as amended, Section 17 of Commonwealth Act No. 146, as
otherwise known as the Public Service Act. amended.

The Board shall fix and determine the proper SECTION 57. Copy of Standard Rules and
and adequate rates of depreciation of the Regulations Governing the Operation of
property of the electric utilities under its Electric Utilities. – Every electric utility under
jurisdiction which will be observed in a the jurisdiction and control of the Energy
proper and adequate depreciation account to Regulatory Board must keep on file in its
be carried for the protection of stockholders, offices a copy of this Standard Rules and
bondholders or creditors in accordance with Regulations.
such rules, regulations and form of account
SECTION 58. Violation. – Violation of
as the Board may prescribe. Said rates shall
any provision of this Standard Rules and
be sufficient to provide the amounts required
Regulations shall be subject to the penalty
over and above the expense of maintenance
which the Board may impose in accordance
to keep such property in a state of efficiency
with law.
corresponding to the progress of the
SECTION 59. Repealing Clause. – This Pasig, Metro Manila, August 03, 1995
Standard Rules and Regulations supersedes
and revokes Public Service Commission’s REX V. TANTIONGCO
Revised Order No. 1, adopted on November Chairman
27, 1941 and all other rules and regulations
OSCAR E. ALA
inconsistent herewith.
Member
SECTION 60. Effectivity. – This Standard Rules
and Regulations shall take effect fifteen (15) BAYANI V. FAYLONA
days after its publication in the Official Gazette Member
or in any newspaper of general circulation in
the country. ARNALDO P. BALDONADO
Member
So Ordered.
EDWARD C. CASTAÑEDA
Member

AN ACT GRANTING THE NATIONAL GRID CORPORATION OF THE PHILIPPINES A FRANCHISE TO
ENGAGE IN THE BUSINESS OF CONVEYING OR TRANSMITTING ELECTRICITY THROUGH HIGH
VOLTAGE BACK-BONE SYSTEM OF INTERCONNECTED TRANSMISSION LINES, SUBSTATIONS AND
RELATED FACILITIES, AND FOR OTHER PURPOSES
SECTION 1. Nature and Scope of Franchise. transmission system and to construct, install,
– Subject to the provisions of the Constitution finance, manage, improve, expand, operate,
and applicable laws, rules and regulations, maintain, rehabilitate repair and refurbish the
and subject to the terms and conditions of the present nationwide transmission system of
concession agreement and other documents the Republic of the Philippines. The Grantee
executed with the National Transmission shall continue to operate and maintain the
Corporation (TRANSCO) and the Power Sector subtransmission system which have not been
Assets & Liabilities Management Corporation disposed by TRANSCO. Likewise, the Grantee
(PSALM) pursuant to Section 21 of Republic is authorized to engage in construct, install,
Act No. 9136, which are not inconsistent finance, improve, expand, rehabilitate and
herewith, there is hereby granted to the repair the nationwide transmission system
National Grid Corporation of the Philippines, and the grid of the Republic of the Philippines,
hereunder referred to as the Grantee, its ancillary business and any related business
successors or assigns, a franchise to operate, which maximizes utilization of its assets such
manage and maintain, and in connection as, but not limited to, telecommunications
therewith, to engage in the business system, pursuant to Section 20 of Republic
of conveying or transmitting electricity Act No. 9136. The scope of the franchise
through high voltage back-bone system of shall be nationwide in accordance with the
interconnected transmission lines, substations Transmission Development Plan, subject to
and related facilities, system operations, amendments or modifications of the said
and other activities that are necessary to Plan, as may be approved by the Department
support the safe and reliable operation of the of Energy of the Republic of the Philippines.


SECTION 2. Terms and Conditions of Franchise. SECTION 5. Right of the Government. – A
– This franchise shall be for a term of fifty (50) special right is hereby reserved to the President
years from the date of effectivity of this Act, of the Philippines, in times of war, rebellion,
and is hereby granted under the condition public peril, calamity, emergency, disaster, or
that it shall be subject to amendment, disturbance of peace and order, to temporarily
alteration, or repeal by Congress when take over and operate the transmission
the common good so requires. During the system and/or the subtransmission systems
period of operation of the franchise herein operated and maintained by the Grantee,
granted, at least sixty per centum (60%) of to temporarily suspend the operation of
the capital of the Grantee shall be owned by any portion thereof, or the facility in the
citizens of the Philippines. The grantee shall interest of public safety, security and public
comply with the Constitution and applicable welfare, or to authorize the temporary use
laws pertaining to foreign ownership and and operation thereof by any agency of the
management of public utilities. government upon due compensation to the
Grantee for the use of the said transmission
SECTION 3. Manner of Operation of System system, and subtransmission systems and any
or Facilities. – The transmission system, grid portion thereof during the period when they
and related facilities maintained, operated shall be so operated.
or managed by the Grantee, its successors
or assigns, shall be operated and maintained SECTION 6. Sale, Lease, Transfer, Usufruct,
at all times in accordance with industry etc. – The Grantee shall not lease, transfer,
standards, and it shall be the duty of the grant the usufruct of, or sell this franchise
Grantee, its successors or assigns, whenever or the rights and privileges acquired
required to do so by the Energy Regulatory hereunder to any person, firm, company
Commission (ERC) or its legal successor, to or other commercial or legal entity, nor
modify, improve and change such system or merge with any other company or entity
facilities in such manner and to such extent nor shall the controlling interest of the
as the progress in science and improvements Grantee be transferred, whether in whole
in the electric power services may reasonably or in part, and whether simultaneously or
require. contemporaneously, to any person, firm,
company or entity without the prior approval
SECTION 4. Right of Eminent Domain. – Subject of the Congress of the Philippines: Provided,
to the limitations and procedures prescribed That the foregoing limitation shall not apply
by law, the Grantee is authorized to exercise to any transfer or issuance of shares of stock
the right of eminent domain insofar as it may in the implementation of the requirement for
be reasonably necessary for the construction, the Grantee’s dispersal of ownership pursuant
expansion, and efficient maintenance and to Section 8 of this Act; or to any issuance
operation of the transmission system and grid of shares to any foreign or local investors
and the efficient operation and maintenance pursuant to or in connection with any
of the subtransmission systems which have increase in the Grantee’s authorized capital
not yet been disposed by TRANSCO. The stock which results in the dilution of the
Grantee may acquire such private property as stockholdings of the Grantee’s then existing
is actually necessary for the realization of the stockholders: Provided, moreover, That the
purposes for which this franchise is granted: foregoing limitations shall not apply to any
Provided, That the applicable law on eminent transfer, sale or issuance of shares of stock
domain shall be observed, particularly, the at the level of corporate stockholders of the
prerequisites of taking of possession and Grantee’s: Provided, furthermore, That the
the determination and payment of just foregoing limitations shall not apply in case
compensation. of assignment or transfer of the operation of
any of its related business such as, but not
limited to, telecommunications business to is a Power Industry Player, if such share
another entity: Provided, however, That any ownership is not more than one per centum
such transfer, sale or issuance at the level of (1%) of the total outstanding shares of such
the corporate stockholders of the Grantee is listed Power Industry Player; or (b) ownership
in accordance with applicable constitutional of shares of stock which is not more than one
limitations: Provided, finally, That any person per centum (1%) in a company listed in the
or entity to which such shares are sold, PSE which owns or controls shares of stock
transferred or assigned under this Act shall in the Grantee: Provided, moreover, That
be subject to the same conditions, terms, such owner of shares of stock in the listed
restrictions and limitations of this Act. corporate stockholder of the Grantee shall
not own more than one per centum (1%) of
SECTION 7. Cross-Ownership; Market Power the shares of stock or equity interest in any
Abuse and Anti-Competitive Behavior. – Power Industry Player.
The Grantee shall not engage in any anti-
competitive behavior including, but not No shares of stock issued or acquired in
limited to, cross-subsidization, price or violation hereof shall be allowed to vote or be
market manipulation or other unfair trade entitled to representation at any stockholders’
practices detrimental to the encouragement meeting of the Grantee, nor shall the holder
and protection of contestable markets. thereof be entitled to any of the rights of a
stockholder of the Grantee, including the
The Grantee or any of its stockholders, right to dividends, during the existence of
directors or officers thereof, or any of their such prohibited cross-ownership.
relatives within the fourth civil degree of
consanguinity and their respective spouses, The losing bidders in the bid to operate the
shall not be allowed to hold any shares of transmission and subtransmission facilities
stock in any Power Industry Player as defined of TRANSCO, their principals, subsidiaries,
in this Act. And a Power Industry Player or affiliates, stockholders, directors and officers
its stockholders, directors or officers thereof, shall not be allowed to, directly or indirectly,
or any of their relatives within the fourth civil be transferees or beneficial owners of the
degree of consanguinity and their respective Grantee’s shares of stock or any ownership
spouses, shall not be allowed to hold any rights pertaining thereto, for a period of ten
shares of stock in the Grantee: Provided, (10) years from the effectivity of this Act.
That the cross-ownership prohibition under
this provision shall not apply to a relative The losing bidders, their principals,
by blood or marriage, if such relative of any subsidiaries, affiliates, stockholders, directors
stockholder, director or officer of the Grantee and officers are likewise prohibited to, directly
has no employment, consultancy, fiduciary, or indirectly, acquire or receive any pecuniary
contractual, commercial or other economic interest in the operations by the Grantee of
relationship or interest in the Grantee, or this franchise for a period of ten (10) years
conversely, if such relative of any stockholder, from the effectivity of this Act.
director or officer of a Power Industry Player
has no employment, consultancy, fiduciary, An “affiliate” means any person which,
contractual, commercial or other economic alone or together with any other person,
relationship or interest in the Power directly or indirectly, through one (1) or more
Industry Player: Provided, further, That this intermediaries, controls, is controlled by, or is
prohibition on cross-ownership shall not under common control, with another person.
apply to: (a) ownership of shares of stock As used herein, “control” shall mean the
in a company listed in the Philippine Stock power to direct or cause the direction of the
Exchange (PSE) even if such listed company management policies of a person by contract,
agency or otherwise.
A “Power Industry Player” for purposes of local or national, on its franchise, rights,
this provision means a generation company, privileges, receipts, revenues and profits,
distribution utility, or its respective subsidiary and on properties used in connection with
or affiliate, or other entity engaged in its franchise, from which taxes, duties and
generating and supplying electricity specified charges, the Grantee is hereby expressly
by the ERC. exempted: Provided, That the Grantee, its
successors or assigns, shall be liable to pay the
The provisions on cross-ownership under same taxes on their real estate, buildings and
Section 45 of Republic Act No. 9136 which personal property, exclusive of this franchise,
are inconsistent with this provision shall be as other corporations are now or hereby may
deemed modified accordingly insofar as the be required by law to pay: Provided, further,
Grantee is concerned. The Grantee may That payment by Grantee of the concession
provide ancillary services or engage in any fees due to PSALM under the concession
related business which maximizes utilization agreement shall not be subject to income tax
of its assets. and value-added tax (VAT).

SECTION 8. Dispersal of Ownership. – The SECTION 10. Acceptance and Compliance. –
Grantee shall list, subject to the requirements Acceptance of this franchise shall be given in
of the Securities and Exchange Commission writing by the Grantee within sixty (60) days
(SEC) and the PSE, and make a public offering after the effectivity of this Act.
of the shares representing at least twenty per
centum (20%) of its outstanding capital stock SECTION 11. Warranty in Favor of National
or a higher percentage that may hereafter and Local Government. – The Grantee shall
be provided by law within ten (10) years hold the national, provincial and other local
from the commencement of its operations: governments of the Philippines harmless
Provided, That the listing in the PSE of any from all claims, accounts, demands or
company which directly or indirectly owns or actions arising out of accidents or injuries,
controls at least thirty per centum (30%) of whether to property or persons, caused by
the outstanding shares of stock of the Grantee the construction, installation, operation and
shall be considered full compliance of this maintenance of the transmission system and
listing requirement. In case compliance with the grid.
this requirement is not reached, the ERC may,
upon application of the Grantee, and after SECTION 12. Ingress and Egress. – For the
notice and hearing, allow such reasonable purpose of constructing and/or maintaining
extension of the period within which the transmission and subtransmission assets
Grantee should list its shares of stock, if the and other related support facilities, it shall
market condition is not suitable for such be lawful for the Grantee, its successors and
listing. assigns, with the approval of the relevant
national and local government agencies
SECTION 9. Tax Provisions. – In consideration concerned and the posting of bonds, as may
of the franchise and rights hereby granted, the be appropriate, to make excavations or lay
Grantee, its successors or assigns, shall pay a conduits in any of the public places, highways,
franchise tax equivalent to three percent (3%) streets, lanes, alleys, avenues, sidewalks or
of all gross receipts derived by the Grantee bridges within the Philippines: Provided,
from its operation under this franchise. Said however, That any public place, highways,
tax shall be in lieu of income tax and any street, lane, alley, avenue, sidewalk or bridge
and all taxes, duties, fees and charges of any disturbed, altered or changed by reason of
kind, nature or description levied, established the construction and/or maintenance of
or collected by any authority whatsoever, transmission and subtransmission assets

and other related support facilities shall be SECTION 14. Applicability Clause. – The
immediately repaired and properly restored Grantee shall comply with and be subject to
at the expense of the Grantee, its successors the provisions of Commonwealth Act No. 146,
and assigns, in accordance with the standards as amended, otherwise known as the “Public
set by the relevant national and local Services Act”, which have not otherwise been
government agencies concerned. modified or repealed by Republic Act No.
9136, otherwise known as the Electric Power
SECTION 13. Transfer of Personnel. – Pursuant Industry Reform Act of 2001.
to Section 63 of Republic Act No. 9136 or the
EPIRA Law, and subject to the qualification SECTION 15. Reportorial Requirement. – The
requirements as may be set by the Grantee, Grantee shall submit an annual report of
and subject further to the continued finances and operations to the Congress of
existence of their positions and functions in the Philippines.
the Grantee’s work force, current employees
of TRANSCO shall be given preference within SECTION 16. Separability Clause. – If, for
the one hundred sixty-five (165) day period any reason, any of the sections or provisions
from commencement date over new job of this Act is declared unconstitutional or
applicants in the hiring by the Grantee of its invalid, the other parts or provisions hereof
manpower requirements. which are not affected thereby shall continue
to be in full force and effect.
Notwithstanding the grant of this franchise,
and subject to the conditions provided herein, SECTION 17. Effectivity Clause. – This Act
employees of TRANSCO shall be entitled to shall take effect fifteen (15) days from the
receive from the government all benefits date of its publication, upon the initiative of
provided under Section 63 of Republic Act the Grantee, in at least two (2) newspapers of
No. 9136 without prejudice to such other general circulation in the Philippines.
additional benefits as the Board of Directors
of TRANSCO may determine. Approved, December 1, 2008



AN ACT EXTENDING THE IMPLEMENTATION OF THE LIFELINE RATE, AMENDING FOR THE PURPOSE
SECTION 73 OF REPUBLIC ACT NUMBERED NINETY-ONE THIRTY-SIX, OTHERWISE KNOWN AS THE
“ELECTRIC POWER INDUSTRY REFORM ACT OF 2001”

SECTION 1. Section 73 of Republic Act No. SEC. 2. Separability Clause. – If, for any
9136, otherwise known as the “Electric reason, any provision of this Act or any part
Power Industry Reform Act of 2001”, is hereby thereof shall be held unconstitutional and
amended to read as follows: invalid, the other parts or provisions of this
Act, which are not affected thereby, shall
“SEC. 73. Lifeline Rate. – A socialized remain in full force and effect.
pricing mechanism called a lifeline
rate for the marginalized end-users SEC. 3. Repealing Clause. – All laws, decrees,
shall be set by the ERC, which shall orders, rules and regulations or parts thereof
be exempted from the cross subsidy inconsistent with any of the provisions of
phase-out under this Act for a this Act are hereby repealed, amended or
period of twenty (20) years, unless modified accordingly.
otherwise extended by law. The
level of consumption and the rate SEC. 4. Effectivity Clause. – This Act shall
shall be determined by the ERC after take effect fifteen (15) days after its complete
due notice and hearing.” publication in at least two (2) newspapers of
general circulation.

Approved, June 21, 2011


Chapter 7
Electric Power Industry Cases

SUPREME COURT
Manila
THIRD DIVISION

G.R. No. 127373 March 25, 1999

ENERGY REGULATORY BOARD and ILIGAN decide the dispute – the Energy Regulatory
LIGHT & POWER, INC., Petitioners, Board (ERB) or the Department of Energy
versus (DOE)?
The Case
COURT OF APPEALS and ASSOCIATION OF
MINDANAO INDUSTRIES (AMI), representing This is the main question posed in the
among others the following member- Petition for Review before us, which seeks to
companies: ALSON/ILIGAN CEMENT CORP., set aside the September 27, 1994 Decision
MABUHAY VINYL CORP., MCCI CORP., and November 19, 1996 Resolution of the
MINDANAO FERROALLOY CORP., and Court of Appeals (CA) in CA-GR SP No. 33969.
NATIONAL STEEL CORP., Respondents In its assailed Decision, the CA held that
it was the DOE, no longer the ERB, which
x--------------------------------------------------x had Jurisdiction over direct connection and
disconnection issues. The dispositive portion
DECISION of its Decision reads:[iv][4]

PANGANIBAN, J.: “IN VIEW OF ALL THE FOREGOING, the instant
petition for certiorari and prohibition is
Normally, electric power generated by the GRANTED. Accordingly, the order dated April
National Power Corporation (NPC) is sold 7, 1994 of respondent Energy Regulatory
through private utility firms authorized to Board in ERB Case No. 93-97 entitled ‘In re:
operate within a franchise area. In the present Petition for Implementation of Cabinet Policy
case, the private respondents bypassed the Reforms in the Power Sector,’ is ANNULLED
franchise holder in their area and obtained and SET ASIDE, and said respondent ERB is
power directly from the NPC. Petitioner, ‘directed to cease and desist from proceeding
on the other hand, wants a disconnection with the trial of and to dismiss said ERB Case
of such direct supply. Which agency of the No. 93-97 for lack of jurisdiction over the
government has Jurisdiction to hear and subject matter of the petition therein.”
The assailed Resolution denied the motions “In its Petition, ILPI alleged, inter alia, that it
for reconsideration filed separately by the can meet, even surpass, the set of financial
ERB and the Iligan Light and Power, Inc. (ILPI). standards adopted by the ERB pursuant to
the policy guidelines set by the Cabinet xxx.
The Facts
“AMI filed its ‘Answer with Affirmative
The factual antecedents of this case are not Defenses and/or Motion to Dismiss,’ ‘without
disputed. They are related by the CA as accepting jurisdiction of the Honorable
follows: Board over the subject matter of the
petition,’ on the following grounds, to wit:
“xxx The members of the Association of (1) lack of jurisdiction to hear the petition for
Mindanao Industries are enterprises based in implementation of Cabinet Policy Reforms
Mindanao and registered with the Board of in the Power Sector following the transfer
Investments which were among those granted of its non-price regulatory jurisdiction and
direct connection facility by the National functions to the Department of Energy under
Power Corporation although operating within Rep. Act No. 7638; (2) the petition failed to
the franchise area of private respondent state a cause of action for non-averment of
Iligan Light and Power, Inc. (Iligan for short). petitioner’s ability and willingness to match
the rates of NPC; and (3) non-joinder of
“On October 12, 1993, Iligan filed with the indispensable parties xxx.
respondent Energy Regulatory Board (ERB
for short) a petition for the implementation “On January 4, 1994, the ERB denied in open
of the 1987 Cabinet Policy Reforms in the court AMI’s motion to dismiss the petition.
Power Sector, docketed as ERB-93-97, Likewise, AMI’s motion for reconsideration
praying specifically that the direct supply was denied by the ERB in its order dated
of power to industries within its franchise April 7, 1994 xxx. Hence, the instant petition
area be discontinued by the National Power for certiorari and prohibition to annul the
Corporation (NPC, for short). aforesaid order dated April 7, 1994 and to
prohibit respondent ERB from proceeding
“The Cabinet Policy Reforms referred to were with the hearing of ILPI’s petition.”
among those approved by the President of
the Philippines and her cabinet on January Ruling of the Court of Appeals
21, 1987, the pertinent portion of which is
quoted as follows: The appellate court Justified its ruling in favor
of private respondents in this wise:
‘2. Continue direct connections for industries
authorized under the BOI-NPC Memorandum “To resolve the issues raised in the case at
of Understanding of 12 January 1981, until bar, it is necessary to first characterize the
such time as the appropriate regulatory petition filed by ILPI with the respondent
board determines that direct connection [herein petitioner] ERB. It seems quite clear
of industry to NPC is no longer necessary in that ILPI sought therein to discontinue the
the franchise area of the specific utility or direct supply of power by the NPC to BOI-
cooperative meeting standards of financial registered enterprises operating within its
and technical capability, with satisfactory (ILPI’s) franchise area. Although the petition
guarantees of non-prejudice to industry, is styled as one seeking the implementation
to be set in consultation with NPC and of the Cabinet Policy Reforms in the Power
relevant government agencies; and reviewed Sector, the core of the action, as well as
periodically by the regulatory board.’ xxx the ultimate relief sought, is related to the
distribution or marketing of energy resources.

The matter treated is thus not concerned The Court’s Ruling
with the fixing of power rates. Under the
applicable provisions of law, the matter of The petition has failed to show any reversible
direct supply of power, which is a ma[tt]er of error on the part of the Court of Appeals.
energy distribution and which is undoubtedly
a non-price regulatory matter, is among those Main Issue: Jurisdiction
granted to the jurisdiction of the Department
of Energy under Republic Act No. 7638.” Petitioners submit that ERB’s Jurisdiction to
hear and decide cases on direct connection of
The ERB and the ILPI filed their separate power supply with the NPC was conferred by
motions for reconsideration, which were, the January 23, 1987 Cabinet Memorandum
however, denied in the assailed November approving a set of Policy reforms in the power
19, 1996 Resolution of respondent court. sector, specifically Item No. 2 thereof which
provides:
Hence, this petition.
“Continue direct connection for industries
Issues authorized under the BOI-NPC Memorandum
of Understanding of 12 January 1981 until
Petitioner ILPI presents the following issues such time as the appropriate regulatory board
for resolution: determines that direct connection of industry
to NPC is no longer necessary in the franchise
“I area of the specific utility or cooperative. xxx”

“WHETHER THE COURT OF APPEALS Petitioners claim that RA 7638 transferred
ERRED IN HOLDING THAT THE ERB HAS NO to the DOE the ERB’s non-price regulatory
JURISDICTION TO HEAR AND DECIDE CASES powers and functions relative to the
INVOLVING THE IMPLEMENTATION OF THE petroleum industry only, as enumerated
POLICY REFORMS. under Section 3 of Executive Order No. 172
(EO 172), which they quote as follows:
“II
“SEC. 3. Jurisdiction, Powers and Functions
“WHETHER THE POLICY REFORMS COULD of the Board. – [W]hen warranted and
VALIDLY CONFER ON THE ERB THE only when public necessity requires,
AUTHORITY TO DETERMINE THAT NPC DIRECT the Board may regulate the business
CONNECTIONS ARE NO LONGER NECESSARY; of importing, exporting, re-exporting,
shipping, transporting, processing, refining,
“III marketing and distributing energy resources.
Energy resource means any substance or
“WHETHER THE DECISION IN THE NPC AND phenomenon which by itself or in combination
PHIVIDEC CASES IS APPLICABLE TO THIS with others, or after processing or refining or
CASE.” the application to it of technology, emanates,
generates, or causes the emanation or
In sum, the pivotal issue in this case, as stated generation of energy, such as but not limited
by Petitioner ERB is “whether the ERB has to petroleum or petroleum products, coal,
Jurisdiction to hear and decide cases involving marsh gas, methane gas, geothermal and
direct connection issues.” hydroelectric sources of energy, uranium
and other similar radioactive materials,
solar energy, tidal power, as well as non-
conventional existing and potential sources.

“The Board shall, upon proper notice and provision, it could not have been included
hearing, exercise the following, among other among the functions given to the DOE.
powers and functions-.
Respondents, on the other hand, insist that
“(a) Fix and regulate the prices of petroleum Jurisdiction over the connection issue in the
products; case at bar now belongs to the DOE. In support
of their stand, they cite the consolidated cases
“(b) Fix and regulate the rate schedule or (1) National Power Corp. v. Court of Appeals
prices of piped gas to be charged by and Cagayan Electric Power and Light Co.
duly franchised gas companies which and (2) Phividec Industrial Authority v. Court
distribute gas by means of underground of Appeals and Cagayan Electric Power and
pipe system; Light Co., in which this Court stated:
“(c) Fix and regulate the rates of pipeline “The determination of which of the two
concessionaires under the provisions public utilities has the right to supply electric
of Republic Act No. 387, as amended, power to an area which is within the coverage
otherwise known as the “Petroleum Act of both is certainly not a rate fixing function
of 1949”, as amended by Presidential which should remain with ERB. It deals with
Decree No. 1700; the regulation of the distribution of energy
resources which, under Executive Order No.
“(d) Regulate the capacities of new refineries 172, was expressly a function of ERB. However,
that may be organized after the issuance with the enactment of Republic Act No. 7638,
of this Executive Order, under such terms the Department of Energy took over such
and conditions as are consistent with the function. Hence, it is this Department which
national interest; should then determine whether CEPALCO
or PIA [Phividec Industrial Authority] should
“(e) Whenever the Board has determined supply power to PIE-MO [Phividec Industrial
that there is a shortage of any petroleum Estate-Misamis Oriental].”
product, or when public interest so
requires, it may take such steps as it Consequently, the Court disposed of the
may consider necessary, including the consolidated cases as follows:
temporary adjustment of the levels of
prices of petroleum products and the “WHEREFORE, both petitions in G.R. No[s].
payment to the Oil Price Stabilization 112702 and 113613 are hereby DENIED. The
Fund created under Presidential Decree Department of Energy is directed to conduct
No. 1956 by persons or entities engaged a hearing with utmost dispatch to determine
in the petroleum industry of such whether it is the Cagayan Electric Power
amounts as may be determined by the and Light Co., Inc. or the National Power
Board, which will enable the importer to Corporation, through the PHIVIDEC Industrial
recover its cost of importation.” Authority, which should supply electric power
to the industries in the PHIVIDEC Industrial
While conceding that the regulation of the Estate-Misamis Oriental.”
marketing and the distribution of energy
resources has been expressly transferred to While the core question raised in these
the DOE, petitioners contend, however, that consolidated cases was whether the NPC
electric power is not an energy resource. They could supply power directly to the PIE-MO
allege that since the authority to pass upon area, where CEPALCO had a franchise, we find
issues of direct electric power connection the Court’s pronouncements on them relevant
was not mentioned at all in the above-quoted to the instant controversy. Corollary to the

main question was the issue of whether the be organized after the issuance of this
NPC had the power to hear and decide cases Executive Order, under such terms and
involving direct power connection. This Court conditions as are consistent with the
held that “the NPC is not the proper authority national interest;
xxx, not only because the subject matter of
the hearing is a matter involving the NPC ‘(e) Whenever the Board has determined
itself, but also because the law has created that there is a shortage of any petroleum
the proper administrative body vested with product, or when public interest so
authority to conduct a hearing. As to which requires, it may take such steps as it
was the “proper administrative body,” may consider necessary, including the
the Court made the following illuminating temporary adjustment of the levels of
disquisition: prices of petroleum products and the
payment to the Oil Price Stabilization
“The ERB, which used to be the Board of Fund created under Presidential Decree
Energy, is tasked with the following powers No. 1956 by persons or entities engaged
and functions by Executive Order No. 172 in the petroleum industry of such
which took effect immediately after its amounts as may be determined by the
issuance on May 8, 1987: Board, which will enable the importer to
recover its cost of importation.’
‘SEC. 3. Jurisdiction, Powers and Functions
of the Board. – When warranted and “As may be gleaned from said provisions, the
only when public necessity requires, ERB is basically a price or rate-fixing agency.
the Board may regulate the business of Apparently recognizing this basic function,
importing, exporting, re-exporting, shipping, Republic Act No. 7638 (An Act Creating the
transporting, processing, refining, marketing Department of Energy, Rationalizing the
and distributing energy resources. Xxx Organization and Functions of Government
Agencies Related to Energy, and for Other
‘The Board shall, upon proper notice and Purposes), which was approved on December
hearing, exercise the following, among other 9, 1992 and which took effect fifteen days
powers and functions: after its complete publication in at least two
(2) national newspapers of general circulation,
‘(a) Fix and regulate the prices of petroleum specifically provides as follows:
products;
‘SEC. 18. Rationalization or Transfer of
‘(b) Fix and regulate the rate schedule or Functions of Attached or Related Agencies. –
prices of piped gas to be charged by The non-price regulatory jurisdiction, powers,
duly franchised gas companies which and functions of the Energy Regulatory Board
distribute gas by means of underground as provided for in Section 3 of Executive
pipe system; Order No. 172 are hereby transferred to the
Department.
‘(c) Fix and regulate the rates of pipeline
concessionaires under the provisions ‘The foregoing transfer of powers and
of Republic Act No. 387, as amended, functions shall include all applicable funds
otherwise known as the ‘Petroleum Act and appropriations, records, equipment,
of 1949,’ as amended by Presidential property, and such personnel as may be
Decree No. 1700; necessary. Provided, That only such amount
of funds and appropriations of the Board
‘(d) Regulate the capacities of new refineries as well as only the personnel thereof which
or additional capacities of existing are completely or primarily involved in
refineries and license refineries that may the exercise by said Board of its non-price
regulatory powers and functions shall be 18 and are, therefore, not to be deemed
affected by such transfer. included in the transfer of functions from ERB
to DOE under the said provision.
‘The power of the NPC to determine, fix,
and prescribe the rates being charged to its ‘It may be argued that Section 26 of R.A.
customers under Section 4 of Republic Act No. 7638 contains a repealing clause which
No. 6395, as amended, as well as the power provides that:
of electric cooperatives to fix rates under
‘All laws, presidential decrees, executive
Section 16 (o), Chapter 11 of Presidential
orders, rules and regulations, or parts thereof,
Decree No. 269, as amended, are hereby
inconsistent with the provisions of this Act,
transferred to the Energy Regulatory Board.
are hereby repealed or modified accordingly.
The Board shall exercise its new powers only
xxx.
after due notice and hearing and under the
same procedure provided for in Executive ’and, therefore, all provisions of E.O. No.
Order No. 172.’ 172 and related laws which are inconsistent
with the policy, purpose and intent of R.A.
“Upon the effectivity of Republic Act No. 7638 are deemed repealed. It has been
No. 7638, then Acting Chairman of the said, however, that a general repealing
Energy Coordinating Council Delfin Lazaro clause of such nature does not operate as an
transmitted to the Department of Justice the express repeal because it fails to identify or
query of whether or not the ‘non-power rate designate the act or acts that are intended
powers and functions’ of the ERB are included to be repealed. Rather, it is a clause which
in the ‘jurisdiction, powers and functions predicates the intended repeal upon the
transferred to the Department of Energy.’ condition that a substantial conflict must be
Answering the query in the affirmative, the found[ed] on existing and prior acts of the
Department of Justice rendered Opinion No. same subject matter. Such being the case,
22 dated February 12, 1993 the pertinent the presumption against implied repeals
portion of which states: and the rule on strict construction regarding
implied repeals shall apply ex proprio vigore.
‘xxx we believe that since the provision of For the legislature is presumed to know the
Section 18 on the transfer of certain powers existing laws so that, if repeal of particular or
and functions from ERB to DOE is clear and specific laws is intended, the proper step is
unequivocal, and devoid of any ambiguity, in to so express it. The failure to add a specific
the sense that it categorically refers to ‘non- repealing clause particularly mentioning the
price jurisdiction, powers and functions’ of statute to be repealed indicates that the intent
ERB under Section 3 of E.O. No. 172, there was not to repeal any existing law on the
is no room for interpretation, but only for matter, unless an irreconcilable inconsistency
application, of the law. This is a cardinal rule and repugnancy exists in the terms of the
of statutory construction. new and the old laws (Iloilo Palay and Corn
‘Clearly, the parameters of the transfer of Planters Association, Inc. vs. Feliciano, 13
functions for ERB to DOE pursuant to Section SCRA 377; City of Naga vs. Agna, 71 SCRA
18, are circumscribed by the provision of 176, cited in Agpalo, Statutory Construction,
Section 3 of E.O. No. 172 alone, so that, If 1990 Edition, pp. 191-192).
there are other ‘related’ functions of ERB ‘In view of the foregoing, it is our opinion that
under other provisions of E.O. No. 172 or only the non-price regulatory functions of ERB
other energy laws, these ‘related’ functions, under Section 3 of E.O. 172 are transferred
which may conceivably refer to what you call to the DOE.’ All the powers of ERB which
‘non-power rate powers and functions’ of are not within the purview of its ‘non-price
ERB, are clearly not contemplated by Section regulatory jurisdiction, powers and functions’
as defined in Section 3 are not so transferred functions of the ERB that were transferred
to DOE and accordingly remain vested in ERB.’ to the DOE concerned those relating to the
petroleum industry only and not to electric
“The determination of which of two public power. Section 3 of EO 172 broadly defines
utilities has the right to supply electric power energy resource as “any substance or
to an area which is within the coverage of phenomenon which by itself or in combination
both is certainly not a rate-fixing function with others xxx emanates, [or] generates xxx
which should remain with the ERB. It deals energy, xxx.” Electric power or electricity has
with the regulation of the distribution of been in turn defined as “an imponderable
energy resources which, under Executive and invisible agent producing light, heat,
Order No. 172, was expressly a function chemical decomposition, and other physical
of ERB. However, with the enactment of phenomena.”
Republic Act No. 7638, the Department of
Energy took over such function. Hence, it is Undoubtedly electricity produces or generates
this Department which shall then determine energy. By simple logic, it is an energy
whether CEPALCO or PIA should supply power resource. The regulation of its distribution
to PIE-MO.” is, therefore, among those functions formerly
belonging to the ERB, which have been
The foregoing sufficiently indicates that transferred to the DOE as expressly directed
it is now the Department of Energy that in Section 18 of RA 7638. Nowhere in this
has jurisdiction over the regulation of the provision is there any restriction of its scope
marketing and the distribution of energy to petroleum and its products only. The
resources. It may be true that this function reference to petroleum is merely by way of
formerly belonged to the ERB, by virtue of the example of what an energy resource is. In
“Cabinet Policy Reforms in the Energy Sector” fact, the set of examples of energy resources
embodied in the Cabinet Memorandum of enumerated in the law is prefaced with “such
January 23, 1987, and EO 172 issued May 8, as but not limited to.” This can only mean
1987. However, pursuant to Section 18 of that the enumeration is nonrestrictive.
RA 7638, which was subsequently enacted
by Congress on December 9, 1992, the non- Moreover, Section 5 of RA 7638 defines the
rate-fixing Jurisdiction powers and functions powers and functions of the DOE as follows:
of the ERB have been transferred to the
Department of Energy. The applications for “SEC. 5. Powers and Functions. – The
the NPC’s direct supply or disconnection of Department shall have the following powers
power involve essentially the distribution of and functions:
energy resources, not by any incident the
xxx xxx xxx
determinations of power rates. Consequently,
these applications be resolved by the DOE. “(d) Exercise supervision and control
over all government activities relative
It is of no moment that the petition instituted
to energy projects in order to attain
by ILPI before the ERB was captioned “for the
the goods embodied in Section 2 of
Implementation of the 1987 Cabinet Policy
this Act.
Reforms in the Power Sector.” The relief it
specifically sought was the discontinuation “(e) Regulate private sector activities
of NPC’s direct supply of power to private relative to energy projects as provided
respondent’s member-companies. Definitely for under existing laws: Provided,
then, the distribution of an energy resource That the Department shall endeavor
was its main purpose. to provide for an environment
conducive to free and active private
Neither does the Court agree with the
sector participation and involvement
petitioners’ claim that the regulatory
in all energy activities.” Definitely, the exploration, the production,
the marketing, the distribution, the
As to what energy projects encompass, utilization or any other activity involving any
Section 3 of the same law gives this definition: energy resource or product falls within the
“SEC. 3. Definition of Terms. – (a) ‘Energy supervision and control of the DOE.
projects’ shall mean activities or projects WHEREFORE the petition is hereby DENIED
relative to the exploration, extraction, and the assailed Decision is AFFIRMED.
production, importation-exportation,
processing, transportation, marketing, SO ORDERED.
distribution, utilization, conservation, Romero (Chairman), Vitug, Purisima, and
stockpiling or storage of all forms of energy Gonzaga-Reyes, JJ., concur
products and resources.” (Italics supplied.)

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 135925 December 22, 2004
BATELEC II ELECTRIC COOPERATIVE INC., cannot supply cheap electricity to power

Petitioner, intensive industries. It is in the public interest
when industries dependent on heavy use of
versus electricity are given reliable and direct power
at the lower costs thus enabling the sale of
ENERGY INDUSTRY ADMINISTRATION BUREAU nationally marketed products at prices within
(EIAB), PUYAT STEEL CORP. AND NATIONAL the reach of the masses.
POWER CORPORATION, Respondent.
Impugned, in this petition for review, is the
x--------------------------------------------------x decision dated 25 June 1998 of the Court of
Appeals in CA-G.R. SP No. 47880 dismissing
DECISION the special civil action for certiorari filed by
petitioner Batangas II Electric Cooperative,
CHICO-NAZARIO, J.: Inc. (BATELEC II), questioning the resolution
of the Energy Industry Administration Bureau
… Exclusivity is given by law with the (Bureau) of the Department of Energy
understanding that the company enjoying it which granted the application of private
is self-sufficient and capable of supplying the respondent Puyat Steel Corporation (PSC) for
needed service or product at moderate or direct power connection with the National
reasonable prices. It would be against public Power Corporation (NPC). Petitioner likewise
interest where the firm granted a monopoly assails the Court of Appeals resolution dated
is merely an unnecessary conduit of electric 13 October 1998 denying the motion for
power, jacking up prices as a superfluous reconsideration filed by BATELEC II.
middleman or an inefficient producer which
The particulars that ushered the filing of the BATELEC II vouched to complete the
petition, as culled from the resolution of the installation of the needed facilities by April
Bureau, which we find to be amply supported 1997. yet, BATELEC II botched in making
by the records, follow: good its part of the bargain. The scheduled
completion was never fulfilled by BATELEC II
Petitioner BATELEC II is an electric cooperative even several months after the targeted date.
authorized to distribute electric power in
Rosario, Province of Batangas. On 17 November 1997, PSC filed with the
Bureau an application for direct connection
Private respondent PSC is a galvanizing steel with the NPC.1 The Bureau, under the
sheet company in the Philippines having been umbrella of the Department of Energy, derives
established in 1956. Granted a pioneer status its mandate from Section 12(c) of Republic
by the Board of Investments, it embarked to Act No. 7638, known as An Act Creating the
build in Rosario, Batangas Province, its new Department of Energy, Rationalizing The
plant, envisioned as a modern galvanizing Organization and Functions of Government
plant utilizing a state-of-the-art non-oxidizing Agencies Related To Energy, And for Other
furnace-type process, the first of its kind in Purposes, approved on 09 December 1992.
the country. Its functions embrace the following-
As this new plant would entail a delivery (1) Assist in the formulation of regulatory
voltage of 69 kilovolts (kv), PSC commenced policies to encourage and guide the
on 14 November 1997 its negotiations for operations of both government and
the supply of said energy requirement with private entities involved in energy
BATELEC II, the electric franchise holder in the resource supply activities such as
area. As the 69 kv transmission lines owned independent power production,
by the NPC are located about 1.4 kilometers electricity distribution, as well as the
away from the plant, PSC and BATELEC II importation, exportation, stockpiling,
entered into an agreement wherein the latter, storage, shipping, transportation,
not having any 69 kv transmission lines at refinement, processing, marketing, and
present, shall handle the construction of the distribution of all forms of energy and
needed 69 kv transmission lines. energy products, whether conventional
or nonconventional;
In a letter dated 02 December 1996,
BATELEC II, through its manager Evangel (2) Draw up plans to cope with contingencies
A. Manundo, submitted to PSC a Bill of of energy supply interruptions; and
Materials for the proposed construction of
the 69 kv transmission lines amounting to (3) Assist in the formulation of financial
P2,956,838.56 with a proviso that additional and fiscal policies, rules, guidelines, and
costs shall later be incurred for other items. requirements relative to the operations
In said letter, BATELEC II requested that the of entities involved in the supply of
amount be settled so that the procurement of energy resources such as oil companies,
the needed materials be facilitated. petroleum product dealers, coal
importing and distributing companies,
In a letter dated 18 December 1996, PSC natural gas distributing companies,
accepted BATELEC II’s proposal. PSC further independent power producers, and all
stated that said letter shall serve as a notice of other entities involved in conventional
award and to proceed with the construction energy supply activities and implement
of the needed 69 kv transmission lines.8 and enforce said policies. (Emphases
supplied)

As a standard operating procedure, the Further, the Bureau made the determination
Bureau, in its evaluation of an application for that BATELEC II was neither technically nor
direct power connection, whether new or for financially capable of supplying the 69 kv of
renewal, takes into account the technical or power supply to PSC. The following were the
financial capability of the electric franchise specific findings of the Bureau concerning
holder in the applicant’s site, in this case BATELEC II’s technical and financial capability:
BATELEC II, to serve the energy needs of the
applicant. Thus, on 04 December 1997, the The technical capability evaluation covered
Electricity Division of the Bureau endorsed the system loss, the power factor, and the
to the Hearing Division its evaluation report average voltage variation.
on the technical and financial capability of
BATELEC II. On the system loss, records show that BATELEC
II improved in 1996 having registered 24.70
For the purpose of looking for any possibility percent against the cooperative’s system loss
of settlement, the parties concerned were for 1994 and 1995 of 27.98 percent and 28.57
invited to a conference on 17 December 1997. percent, respectively. Notwithstanding, with
In said meeting, representatives of BATELEC the set standard at 22%, BATELEC II failed.
II explained their difficulties in acquiring the
right of way for the 69 kv transmission lines. For its Power Factor, it is significant to note
PSC, on the other hand, averred that it is that BATELEC II’s reactive metering was only
precisely because of BATELEC II’s failure to installed in April, 1996. Thus, the cooperative’s
accomplish its undertaking that prompted system power factor was only established
it to file its application with the Bureau to in that same year. Nonetheless, having
source its direct power supply from NPC, registered an 84.33 percent power factor,
inasmuch as it is a business enterprise with a BATELEC II failed to meet the prescribed 90
crucial timetable. percent power factor standard.
The Bureau then directed BATELEC II and PSC Regarding the system’s average voltage
to submit their respective position papers on variation … BATELEC II passed.
the matter on or before 15 January 1998, after
which the application was deemed submitted For the Financial Capability, the following
for resolution. were discovered:
For its Outstanding Debt to NPC (ODNPC),
PSC reiterated in its position paper that it BATELEC II incurred unpaid power bills in
was BATELEC II’s breach of their contract that 1994 but was current for the years 1995 and
impelled it to file an application for direct 1996. The set standard is at no outstanding/
connection with the NPC. For its part, BATELEC overdue account with the National Power
II, in its Comment and Manifestation, claimed Corporation.
that it has finally solved the problem with the
owner of the land where the 69 kv lines were As to its Amortization Payments (AP) records
to cross and that said 69 kv lines were finally show that in 1994, BATELEC II was three
constructed and ready for use by the PSC. (3) quarters behind with its amortization
However, the Bureau decreed that BATELEC payments while for 1995 and 1996 it was one
II’s claim that it had already constructed the (1) quarter behind its payment schedule with
needed 69 kv transmission lines has remained the National Electrification Administration
a bare claim, not supported by evidence on (NEA). Under this parameter, the set standard
record as BATELEC II itself admitted in the is a maximum of one (1) month delayed
meeting of 17 December 1997 that it has yet payment.
to construct said facility.

As to its Average Collection Period (ACP), application shall permit the recovery by
BATELEC II improved its collection efficiency NPC of all costs associated with said 230 kv
having posed an average collection period service. Finally, it is understood that applicant
from 1994 to 1996 of 60 days, 48 days, and will comply with the rules and regulations
32 days, respectively. The set standard is 45 that the DOE will issue governing bulk power
days. supply.
For its Operating Expense Ratio (OER), Accordingly, applicant PUYAT STEEL
BATELEC II posed 95.1 percent, 92.1 percent, CORPORATION is hereby directed to pay
and 91.62 percent, respectively, for the three the amount of ONE THOUSAND PESOS
years of 1994 to 1996. The set standard is (P1,000.00) to the Bureau pursuant to the
95%. DOF-DBM Circular No. 2-94 within thirty (30)
days from receipt of this Resolution.
From all of the above, it is clear that BATELEC
II failed to meet the performance standards Consequently, private respondent PSC
set forth by ER 1-97. It is thus concluded that filed a complaint for Damages With Prayer
it is not capable of serving applicant’s bulk for Preliminary Injunction and Temporary
energy needs. Restraining Order with the Regional Trial
Court (RTC), Branch 87, Rosario, Batangas to
Further, the Bureau took note that the enjoin petitioner BATELEC II from committing
National Electrification Administration acts that would prevent direct power
(NEA), the overseer of electric cooperatives, connection between respondents PSC and
rated BATELEC II’s performance as under the NPC. In its complaint, PSC alleged that on
Category “E” “C” and “D” for the years 1994, 28 May 1998 BATELEC II maliciously switched
1995 and 1996. These are equivalent to off the air brake switch and removed cables
“POOR” performance based on NEA’s Annual and insulators from the transmission poles
Categorization Reports. supplying electricity from the NPC to PSC
resulting in complete electric power failure to
Accordingly, in a resolution dated 16 March the facilities of the latter in Rosario, Batangas.
1998, the Bureau approved PSC’s application
for bulk power supply with the NPC after it On 08 June 1998, the trial court issued a
made the determination that BATELEC II is not temporary restraining order valid for twenty
technically and financially capable of serving (20) days enjoining petitioner BATELEC II
the bulk energy needs of psc. The Bureau to desist from committing acts that would
concluded, with a fallo in this wise: prevent the supply of electric power from
NPC to PSC’s plant in Rosario, Batangas,
WHEREFORE, in view of all the foregoing, the pursuant to respondent Bureau’s Resolution
Bureau is convinced that BATELEC II is not of 16 March 1998.
technically and financially capable of serving
the energy requirements of applicant and Displeased, BATELEC II filed before the Court
hereby APPROVES the instant application for of Appeals a petition for certiorari with a
bulk power supply with the National Power prayer for the issuance of a writ of preliminary
Corporation by Puyat Steel Corporation. injunction and temporary restraining order.
BATELEC II ascribed grave abuse of discretion
It is to be noted however that the applicant to the Bureau for issuing a resolution allegedly
will be provided bulk service at 69 kv due sans the benefit of a hearing and for its
to technical limitations. Furthermore since alleged failure to resolve inter alia the issue
under ER 1-97 the prescribed minimum of NPC’s disqualification from distributing
transmission voltage level in the Luzon area is electric power directly to consumers within
230 kv, the rates to be applied in the instant the franchised area of BATELEC II. Later,
BATELEC II amended its petition to include COURT ADMINISTRATIVE CIRCULAR
the RTC, Branch 87, Rosario, Batangas which NO. 3-96 AND ITS REVISED ORDER
issued a temporary restraining order valid for NO. 1-88.
twenty (20) days in favor of PSC.
This petition brings to the following issues
The Court of Appeals denied the petition that call for resolution, namely:
on the grounds of: (1) failure to exhaust
administrative remedies as petitioner did (1) Did the Court of Appeals commit a
not file a motion for reconsideration of the reversible error in dismissing CA-G.R. SP
Bureau’s resolution; and (2) failure to attach No. 47880 on purely technical grounds,
a certified true copy or duplicate original i.e., that the attached copy of the NLRC
copy of the Bureau’s resolution in defiance decision is a mere photocopy of the
of Supreme Court Administrative Circular No. original decision?
3-96. The dispositive portion of the Court of
Appeals decision provides: (2) Did the Court of Appeals commit a
reversible error in dismissing CA-G.R.
Accordingly, the instant special civil action is SP No. 47880 on the ground of non-
hereby DISMISSED. exhaustion of administrative remedies
before filing a special civil action for
Petitioner was met with similar lack of success certiorari under Rule 65?
in its motion for reconsideration, denied by
the Court of Appeals for lack of merit in a (3) Did the Court of Appeals err in refusing
resolution dated 13 October 1998. to rule on the correctness of the ERB’s
findings?
In this appeal, petitioner lays the following
errors at the door of the Court of Appeals: On the first issue, petitioner asserts that it has
substantially complied with the requirements
A. … IN NOT DELVING INTO THE of Section 1, Rule 65 of the Rules of Civil
MERITS OF THE ABOVE PETITION, Procedure, hence, in the interests of justice
ABNEGATED ITS AUTHORITY TO and equity, the Court of Appeals should have
DECIDE A QUESTION OF SUBSTANCE given due course to its special civil action for
NOT THERETO FOR DETERMINED BY certiorari.
THE HONORABLE SUPREME COURT;
Antithetically, private respondent
B. … IN DISMISSING THE PETITION counterblasts that the mandatory
FILED, THE COURT OF APPEALS requirement in Section 1, Rule 65 of the 1997
OVERLOOKED THE FACT THAT THE Rules of Civil Procedure dictates that the
PETITION FOR CERTIORARI FILED petition shall be accompanied by a certified
UNDER RULE 65 (RULES OF COURT) true copy of the judgment or order subject
IS AN EXCEPTION TO THE RULE THAT thereof, together with copies of all pleadings
A MOTION FOR RECONSIDERATION and documents relevant and pertinent
SHOULD FIRST BE FILED AND/OR thereto. Non-compliance thereto warrants
THAT ADMINISTRATIVE REMEDIES outright dismissal of the petition, private
SHOULD BE EXHAUSTED BEFORE respondent sharply retorts.
RESORT TO COURT IS HAD;
The precursor of the Revised Rules of Civil
C. … IN DISMISSING THE PETITION Procedure, Supreme Court Administrative
FILED, THE COURT OF APPEALS Circular No. 3-96, which took effect on 01
ERRED IN RULING THAT PETITIONER June 1996, instructs us on what a “certified
DID NOT COMPLY WITH SUPREME true copy” is:
1.... The “certified true copy” thereof order to correct a patent injustice made.
shall be such other copy furnished to However, petitioner failed to demonstrate
a party at his instance or in his behalf, any gripping reason for a liberal application
duly authenticated by the authorized of the rules. The right to file a special civil
officers or representatives of the action of certiorari is neither a natural right
issuing entity as hereinbefore nor a part of due process. We call to mind
specified.… NYK International Knitwear Corp. Phils. v.
NLRC, where this Court articulated that a
3. The certified true copy must writ of certiorari is a prerogative writ, never
further comply with all the demandable as a matter of right, never issued
regulations therefor of the issuing except in the exercise of judicial discretion.
entity and it is the authenticated Hence, he who seeks a writ of certiorari must
original of such certified true copy, apply for it only in the manner and strictly in
and not a mere xerox copy thereof, accordance with the provisions of the law and
which shall be utilized as an annex the Rules.
to the petition or other initiatory
pleading.… (Emphasis supplied.) No reversible error may, thus, be ascribed to
the appellate court in CA-G.R. SP No. 47880
From this guidepost, the disputed document, when it refused to give due course to the
although stamped as “Certified True Copy,” petition for failure to observe this technical
was neither a “duplicate original copy” nor requirement.
an authenticated original of such “certified
true copy” thereof, in contravention of Anent the second issue, the drift of petitioner
paragraph 3 of the above-quoted guidelines. that the instant case falls under the recognized
Neither was the authority of the person who exceptions to the rule on exhaustion of
signed the same indicated in the face of the administrative remedies cannot pass judicial
document. Hence, no error may be ascribed muster.
to the Court of Appeals in dismissing the
petition for certiorari outright pursuant to The doctrine of exhaustion of administrative
paragraph 5 of Supreme Court Administrative remedies calls for resort first to the appropriate
Circular No. 3-96, which provides: administrative authorities to accord them the
5. It shall be the duty and responsibility of prior opportunity to decide controversies
the party using the documents required by within their competence before the same
Paragraph (3) of Circular No. 1-88 to verify and may be elevated to the courts of justice for
ensure compliance with all the requirements review. It is presumed that an administrative
therefor as detailed in the preceding agency, if afforded an opportunity to pass
paragraphs. Failure to do so shall result in the upon a matter, will decide the same correctly,
rejection of such annexes and the dismissal or correct any previous error committed in its
of the case. Subsequent compliance shall not forum. Furthermore, reasons of law, comity
warrant any reconsideration unless the court and convenience prevent the courts from
is fully satisfied that the non-compliance entertaining cases proper for determination
was not in any way attributable to the party, by administrative agencies. Hence, premature
despite due diligence on his part, and that resort to the courts necessarily becomes fatal
there are highly justifiable and compelling to the cause of action of the petitioner.
reasons for the court to make such other
disposition as it may deem just and equitable. The doctrine of exhaustion of administrative
remedies is not absolute, however, there
The Court does not close its eyes to special being instances when it may be dispensed
cases when for compelling reasons, we have with and judicial action may be validly
disregarded similar procedural defects in resorted to immediately, among which
are: 1) when the question raised is purely This is because nothing of an administrative
legal; 2) when the administrative body is nature is to be done or can be done in the
in estoppel; 3) when the act complained of administrative forum. But the pivotal issue
is patently illegal; 4) when there is urgent in this case of whether petitioner, not the
need for judicial intervention; 5) when the NPC, should supply the power needs of
claim involved is small; (6) when irreparable PSC requires a probe into the technical and
damage will be suffered; 7) when there is no financial capability of petitioner to meet the
other plain, speedy and adequate remedy; 8) requirements of bulk power supply of PSC
when strong public interest is involved; and 9) - a question of fact, the determination of
in quo warranto proceedings. which is within the expertise of the Bureau.
The contention of petitioner that the issue
In the present case, there is nothing in the is on pure question of law is, therefore,
records to show that petitioner availed of hollow. Petitioner cannot in the guise of
administrative relief before filing a petition raising pure question of law, seek judicial
for certiorari with the Court of Appeals. It did intervention without exhausting the available
not appeal the Bureau’s resolution dated 16 administrative remedies.
March 1998 to the Secretary of Energy, which
under Section 8 in relation to Section 12 of On the merits of the case, the apple of
Rep. Act No. 7638 has the power over the discord between the parties is the propriety
bureaus under the Department. It has not, as of allowing respondent PSC to directly avail of
well, suggested any plausible reason for direct a power connection with the NPC. Petitioner
recourse to the Court of Appeals against the strongly asserts that the NPC is disqualified
Resolution in question. Neither has petitioner from distributing directly electric power
shown that the instant case falls among to respondent PSC in Rosario, Batangas,
the recognized exceptions to the rule on because it is located within the franchised
exhaustion of administrative remedies. area of petitioner BATELEC II. Petitioner adds
that respondent NPC is mandated by law to
Moreover, in light of the doctrine of generate and transmit electric power but
exhaustion of administrative remedies, not distribute it directly to the consumers
a motion for reconsideration must first like respondent PSC. Petitioner banks on this
be filed before the special civil action for Court’s pronouncement in National Power
certiorari may be availed of. As found by Corporation v. Cañares where we stated
the appellate court, petitioner has, likewise, that the national policy is that if the power
failed to establish that it had filed a motion franchise holder can adequately supply the
for reconsideration before its direct recourse power requirement of industries-consumers
to judicial review nor has it amply argued why at rates that the latter can obtain from NPC,
it should be excused from the observance of direct connection with NPC is not favored.
such requirement. Petitioner’s interpretation of Cañares is
skewed.
Equally specious is petitioner’s train of
thought that the requisite of filing a motion for We note that respondent PSC is an enterprise
reconsideration of the challenged resolution registered with the Bureau of Investments
of the Bureau prior to filing a petition for (BOI), as found by the Bureau. In Cañares, we
certiorari with the Court of Appeals is held that there is nothing in the provisions of
dispensable in this case inasmuch as such Presidential Decree (P.D.) No. 395, amending
petition is anchored on a purely question P.D. No. 380 and further amending Rep.
of law. It is a settled rule, it is true, that on Act No. 6395, entitled “An Act Revising the
purely legal question the aggrieved party Charter of the National Power Corporation,”
need not exhaust administrative remedies. which expressly or impliedly allowed or

sanctioned the sale in bulk by the NPC of capable of satisfying the power requirements
energy direct to BOI-registered enterprises, of PSC. This determination by the Bureau, an
such as respondent PSC, even if it would be administrative government agency which is
violative of the rights of existing franchise tasked to implement a statute, is accorded
holders. We stressed: great respect and ordinarily controls the
construction of the courts. In scores of cases,
Presidential Decree No. 380, as it is an elementary rule, sanctified by long
amended, PDC Resolution No. 77- and consistent usage, that the courts will not
01-02 and NPC’s own operational interfere in matters which are addressed to
guidelines for the implementation the sound discretion of government agencies
of the BOI-NPC Memorandum of entrusted with the regulation of activities
Understanding on direct connection coming under the special technical knowledge
establish the state policy that NPC and training of such agencies.
is statutorily empowered to directly
service all the requirement of a BOI- Finally, we draw attention to the fact that
registered enterprise provided that, petitioner had the first bite to service
first, any affected private franchise the power needs of respondent PSC, but
holder is afforded an opportunity BATELEC II blew its chance by reneging on
to be heard on the application its commitment with PSC. PSC’s multi-milion
therefore, and second, from such investment was at a stand-still as a result
hearing, it is established that said of petitioner’s failure to render its services
private franchise holder is incapable in good time. With no time to spare, PSC
or unwilling to match the reliability naturally sought alternative sources of power
and rates NPC for directly serving the by applying for direct power supply with the
latter... (Emphasis in the original). NPC. Threatened to lose a lucrative deal, only
then did BATELEC II exert its last-ditch effort to
In other words, the Court, in Cañares, lure PSC back by giving the false information
disposed that the policy of preference to the that it is now geared up to supply the power
franchise holder is premised on the condition requirement of PSC. With its efforts to make
that such franchise holder must in the first PSC change its mind in vain, petitioner now
place be capable of supplying adequately the waxes lyrical on the national policy of giving
power requirements of the BOI-registered priority to power franchise-holders. The Court
customer and that such capability must will not countenance petitioner’s pretenses
first be ascertained through a hearing in nor shall we be a party to an erroneous
due course. In the same vein, this Court, in construal of the law.
National Power Corporation v. Hon. Court
of Appeals and Cagayan Electric Power To hold, as petitioner would have us believe,
and Light Co., Inc. resonated that if after a that industries such as respondent PSC,
hearing (or an opportunity for such hearing) are absolute captive markets of the area,
it is established that the affected franchise power franchise-holders (regardless of
holder is incapable or unwilling to match their capability to meet the demands of the
the reliability and rates of NPC, then a direct market) is to stifle mercantile endeavors
connection with NPC may be granted. This is in particular and the nation’s economy in
the prevailing situation in the case at bar. general, as industrial enterprises will be at
the mercy of unscrupulous franchise-holders
Here, after due hearing and after careful which can be lackadaisical in delivering the
consideration of the pleadings submitted by power requirements to its customers without
petitioner franchise holder and respondent fear of losing its contracts to the NPC. Not only
PSC, the Bureau made the distinct finding that is this proposition unsound as it would be a
petitioner is not technically and financially turn-off to investors, it is likewise contrary to
the spirit of the law aimed towards national The delay caused by petitioner in delivering
electrification, most beneficial to the greater power supply to PSC translates to higher costs
number of the populace. on its part., i.e., cost of borrowing and lost
sales, which ultimately leads to higher prices
Exclusivity of any public franchise has not of its products to the purchasing public.
been favored by this Court such that in most,
if not all, grants by the government to private Mindful that it is in the public interest
corporations, the interpretation of rights, when industries dependent on heavy use of
privileges or franchises is taken against the electricity are given reliable and direct power
grantee. Thus in Napocor v. Court of Appeals at the lower costs, thus, enabling the sale
and Cagayan Electric Power and Light Co., of nationally marketed products at prices
Inc., the Court was most emphatic: within the reach of the masses, the Court in
the case at bar, finds no compelling cause to
… Exclusivity is given by law with the pronounce any merit in this petition.
understanding that the company
enjoying it is self-sufficient and WHEREFORE, the instant petition is DENIED.
capable of supplying the needed The decision dated 25 June 1998 and
service or product at moderate resolution dated 13 October 1998 of the Court
or reasonable prices. It would of Appeals in CA-G.R. SP No. 47880 dismissing
be against public interest where the special civil action for certiorari filed by
the firm granted a monopoly is petitioner are AFFIRMED. Costs against the
merely an unnecessary conduit of petitioner.
electric power, jacking up prices
as a superfluous middleman or an SO ORDERED.
inefficient producer which cannot
supply cheap electricity to power Puno, Chairman, Austria-Martinez, Callejo,
intensive industries… Sr., and Tinga, JJ., concur.
EN BANC
G.R. No. 159796 July 17, 2007
ROMEO P. GEROCHI, x--------------------------------------------------x

KATULONG NG BAYAN (KB) and
ENVIRONMENTALIST CONSUMERS DECISION
NETWORK, INC. (ECN), Petitioners,
NACHURA, J p:
versus
Petitioners Romeo P. Gerochi, Katulong Ng
DEPARTMENT OF ENERGY (DOE), Bayan (KB), and Environmentalist Consumers
ENERGY REGULATORY COMMISSION (ERC), Network, Inc. (ECN) (petitioners), come
NATIONAL POWER CORPORATION (NPC), before this Court in this original action
POWER SECTOR ASSETS AND LIABILITIES praying that Section 34 of Republic Act (RA)
MANAGEMENT GROUP (PSALM Corp.), 9136, otherwise known as the “Electric
STRATEGIC POWER UTILITIES GROUP (SPUG), Power Industry Reform Act of 2001” (EPIRA),
and PANAY ELECTRIC COMPANY INC. (PECO), imposing the Universal Charge, and Rule 18
Respondents. of the Rules and Regulations (IRR) which
seeks to implement the said imposition, be passed on and collected from all
declared unconstitutional. Petitioners also end-users on a monthly basis by
pray that the Universal Charge imposed the distribution utilities. Collections
upon the consumers be refunded and that by the distribution utilities and
a preliminary injunction and/or temporary the TRANSCO in any given month
restraining order (TRO) be issued directing the shall be remitted to the PSALM
respondents to refrain from implementing, Corp. on or before the fifteenth
charging, and collecting the said charge. The (15th) of the succeeding month,
assailed provision of law reads: net of any amount due to the
distribution utility. Any end-user or
SECTION 34. Universal Charge. — Within self-generating entity not connected
one (1) year from the effectivity of this Act, to a distribution utility shall remit
a universal charge to be determined, fixed its corresponding universal charge
and approved by the ERC, shall be imposed directly to the TRANSCO. The PSALM
on all electricity end-users for the following Corp., as administrator of the fund,
purposes: shall create a Special Trust Fund
which shall be disbursed only for the
(a) Payment for the stranded debts purposes specified herein in an open
in excess of the amount assumed and transparent manner. All amount
by the National Government and collected for the universal charge
stranded contract costs of NPC shall be distributed to the respective
and as well as qualified stranded beneficiaries within a reasonable
contract costs of distribution utilities period to be provided by the ERC.
resulting from the restructuring of
the industry; The Facts
(b) Missionary electrification; Congress enacted the EPIRA on June 8, 2001;

on June 26, 2001, it took effect.
(c) The equalization of the taxes
and royalties applied to indigenous On April 5, 2002, respondent National Power
or renewable sources of energy vis- Corporation-Strategic Power Utilities Group
à-vis imported energy fuels; (NPC-SPUG) filed with respondent Energy
Regulatory Commission (ERC) a petition for
(d) An environmental charge the availment from the Universal Charge of its
equivalent to one-fourth of one share for Missionary Electrification, docketed
centavo per kilowatt-hour (P0.0025/ as ERC Case No. 2002-165.
kWh), which shall accrue to an
environmental fund to be used On May 7, 2002, NPC filed another petition
solely for watershed rehabilitation with ERC, docketed as ERC Case No. 2002-
and management. Said fund shall 194, praying that the proposed share from
be managed by NPC under existing the Universal Charge for the Environmental
arrangements; and charge of P0.0025 per kilowatt-hour (/kWh),
or a total of P119,488,847.59, be approved for
(d) A charge to account for all forms withdrawal from the Special Trust Fund (STF)
of cross-subsidies for a period not managed by respondent Power Sector Assets
exceeding three (3) years. and Liabilities Management Group (PSALM)
for the rehabilitation and management of
The universal charge shall be a non- watershed areas.
bypassable charge which shall be

On December 20, 2002, the ERC issued an Let copies of this Order be furnished petitioner
Order in ERC Case No. 2002-165 provisionally NPC-SPUG and all distribution utilities (Dus).
approving the computed amount of P0.0168/
kWh as the share of the NPC-SPUG from the SO ORDERED.
Universal Charge for Missionary Electrification
and authorizing the National Transmission On August 13, 2003, NPC-SPUG filed a Motion
Corporation (TRANSCO) and Distribution for Reconsideration asking the ERC, among
Utilities to collect the same from its end-users others, to set aside the above-mentioned
on a monthly basis. Decision, which the ERC granted in its Order
dated October 7, 2003, disposing:
On June 26, 2003, the ERC rendered its
Decision (for ERC Case No. 2002-165) WHEREFORE, the foregoing premises
modifying its Order of December 20, 2002, considered, the “Motion for Reconsideration”
thus: filed by petitioner National Power
Corporation-Small Power Utilities Group
WHEREFORE, the foregoing premises (NPC-SPUG) is hereby GRANTED. Accordingly,
considered, the provisional authority granted the Decision dated June 26, 2003 is hereby
to petitioner National Power Corporation- modified accordingly.
Strategic Power Utilities Group (NPC-SPUG)
in the Order dated December 20, 2002 Relative thereto, NPC-SPUG is directed to
is hereby modified to the effect that an submit a quarterly report on the following:
additional amount of P0.0205 per kilowatt-
hour should be added to the P0.0168 per 1. Projects for CY 2002 undertaken;
kilowatt-hour provisionally authorized by the 2. Location
Commission in the said Order. Accordingly, 3. Actual amount utilized to complete the
a total amount of P0.0373 per kilowatt-hour project;
is hereby APPROVED for withdrawal from 4. Period of completion;
the Special Trust Fund managed by PSALM 5. Start of Operation; and
as its share from the Universal Charge for 6. Explanation of the reallocation of UC-ME
Missionary Electrification (UC-ME) effective funds, if any.
on the following billing cycles:
SO ORDERED.
(a) June 26-July 25, 2003 for National
Transmission Corporation (TRANSCO); Meanwhile, on April 2, 2003, ERC decided
and ERC Case No. 2002-194, authorizing the
NPC to draw up to P70,000,000.00 from
(b) July 2003 for Distribution Utilities (Dus). PSALM for its 2003 Watershed Rehabilitation
Budget subject to the availability of funds for
Relative thereto, TRANSCO and Dus are the Environmental Fund component of the
directed to collect the UC-ME in the amount Universal Charge.
of P0.0373 per kilowatt-hour and remit the
same to PSALM on or before the 15th day of On the basis of the said ERC decisions,
the succeeding month. respondent Panay Electric Company, Inc.
(PECO) charged petitioner Romeo P. Gerochi
In the meantime, NPC-SPUG is directed and all other end-users with the Universal
to submit, not later than April 30, 2004, a Charge as reflected in their respective electric
detailed report to include Audited Financial bills starting from the month of July 2003.
Statements and physical status (percentage
of completion) of the projects using the Hence, this original action.
prescribed format.
Petitioners submit that the assailed provision to administrative bodies. Petitioners posit
of law and its IRR which sought to implement that the Universal Charge is imposed not for a
the same are unconstitutional on the similar purpose.
following grounds:
On the other hand, respondent PSALM
(1) The universal charge provided through the Office of the Government
for under Sec. 34 of the EPIRA and Corporate Counsel (OGCC) contends that
sought to be implemented under unlike a tax which is imposed to provide
Sec. 2, Rule 18 of the IRR of the said income for public purposes, such as support
law is a tax which is to be collected of the government, administration of the law,
from all electric end-users and self- or payment of public expenses, the assailed
generating entities. The power to Universal Charge is levied for a specific
tax is strictly a legislative function regulatory purpose, which is to ensure the
and as such, the delegation of viability of the country’s electric power
said power to any executive or industry. Thus, it is exacted by the State in
administrative agency like the ERC the exercise of its inherent police power. On
is unconstitutional, giving the same this premise, PSALM submits that there is no
unlimited authority. The assailed undue delegation of legislative power to the
provision clearly provides that the ERC since the latter merely exercises a limited
Universal Charge is to be determined, authority or discretion as to the execution
fixed and approved by the ERC, and implementation of the provisions of the
hence leaving to the latter complete EPIRA.
discretionary legislative authority.
Respondents Department of Energy (DOE),
(2) The ERC is also empowered to ERC, and NPC, through the Office of the
approve and determine where the Solicitor General (OSG), share the same view
funds collected should be used. that the Universal Charge is not a tax because
it is levied for a specific regulatory purpose,
(3) The imposition of the Universal which is to ensure the viability of the country’s
Charge on all end-users is oppressive electric power industry, and is, therefore, an
and confiscatory and amounts to exaction in the exercise of the State’s police
taxation without representation as power. Respondents further contend that
the consumers were not given a said Universal Charge does not possess the
chance to be heard and represented. essential characteristics of a tax, that its
imposition would redound to the benefit of
Petitioners contend that the Universal Charge the electric power industry and not to the
has the characteristics of a tax and is collected public, and that its rate is uniformly levied
to fund the operations of the NPC. They argue on electricity end-users, unlike a tax which is
that the cases invoked by the respondents imposed based on the individual taxpayer’s
clearly show the regulatory purpose of the ability to pay. Moreover, respondents deny
charges imposed therein, which is not so in that there is undue delegation of legislative
the case at bench. In said cases, the respective power to the ERC since the EPIRA sets forth
funds were created in order to balance and sufficient determinable standards which
stabilize the prices of oil and sugar, and to would guide the ERC in the exercise of the
act as buffer to counteract the changes and powers granted to it. Lastly, respondents
adjustments in prices, peso devaluation, and argue that the imposition of the Universal
other variables which cannot be adequately Charge is not oppressive and confiscatory
and timely monitored by the legislature. since it is an exercise of the police power of the
Thus, there was a need to delegate powers State and it complies with the requirements
of due process.
On its part, respondent PECO argues that it is SECTION 5. The Supreme Court shall have the
duty-bound to collect and remit the amount following powers:
pertaining to the Missionary Electrification
and Environmental Fund components of the 1. Exercise original jurisdiction
Universal Charge, pursuant to Sec. 34 of the over cases affecting ambassadors,
EPIRA and the Decisions in ERC Case Nos. other public ministers and consuls,
2002-194 and 2002-165. Otherwise, PECO and over petitions for certiorari,
could be held liable under Sec. 46 of the prohibition, mandamus, quo
EPIRA, which imposes fines and penalties for warranto, and habeas corpus.
any violation of its provisions or its IRR.
2. Review, revise, reverse, modify,
The Issues or affirm on appeal or certiorari, as
the law or the rules of court may
The ultimate issues in the case at bar are: provide, final judgments and orders
of lower courts in:
1. Whether or not, the Universal Charge
imposed under Sec. 34 of the EPIRA is a (a) All cases in which the constitutionality
tax; and or validity of any treaty, international or
executive agreement, law, presidential
2. Whether or not there is undue delegation decree, proclamation, order, instruction,
of legislative power to tax on the part of ordinance, or regulation is in question.
the ERC.
But this Court’s jurisdiction to issue writs
Before we discuss the issues, the Court shall of certiorari, prohibition, mandamus,
first deal with an obvious procedural lapse. quo warranto, and habeas corpus, while
concurrent with that of the regional trial
Petitioners filed before us an original action courts and the Court of Appeals, does not
particularly denominated as a Complaint give litigants unrestrained freedom of choice
assailing the constitutionality of Sec. 34 of of forum from which to seek such relief. It has
the EPIRA imposing the Universal Charge long been established that this Court will not
and Rule 18 of the EPIRA’s IRR. No doubt, entertain direct resort to it unless the redress
petitioners have locus standi. They impugn desired cannot be obtained in the appropriate
the constitutionality of Sec. 34 of the EPIRA courts, or where exceptional and compelling
because they sustained a direct injury as circumstances justify availment of a remedy
a result of the imposition of the Universal within and call for the exercise of our primary
Charge as reflected in their electric bills. jurisdiction. This circumstance alone warrants
the outright dismissal of the present action.
However, petitioners violated the doctrine
of hierarchy of courts when they filed this This procedural infirmity notwithstanding,
“Complaint” directly with us. Furthermore, we opt to resolve the constitutional issue
the Complaint is bereft of any allegation of raised herein. We are aware that if the
grave abuse of discretion on the part of the constitutionality of Sec. 34 of the EPIRA is not
ERC or any of the public respondents, in order resolved now, the issue will certainly resurface
for the Court to consider it as a petition for in the near future, resulting in a repeat of this
certiorari or prohibition. litigation, and probably involving the same
parties. In the public interest and to avoid
Article VIII, Section 5 (1) and (2) of the 1987 unnecessary delay, this Court renders its
Constitution categorically provides that: ruling now.

The instant complaint is bereft of merit. purpose and regulation is merely incidental,
the imposition is a tax; but if regulation is
The First Issue the primary purpose, the fact that revenue
is incidentally raised does not make the
To resolve the first issue, it is necessary to imposition a tax.
distinguish the State’s power of taxation from
the police power. In exacting the assailed Universal Charge
through Sec. 34 of the EPIRA, the State’s
The power to tax is an incident of sovereignty police power, particularly its regulatory
and is unlimited in its range, acknowledging dimension, is invoked. Such can be deduced
in its very nature no limits, so that security from Sec. 34 which enumerates the purposes
against its abuse is to be found only in for which the Universal Charge is imposed
the responsibility of the legislature which and which can be amply discerned as
imposes the tax on the constituency that regulatory in character. The EPIRA resonates
is to pay it. It is based on the principle that such regulatory purposes, thus:
taxes are the lifeblood of the government,
and their prompt and certain availability is an SECTION 2. Declaration of Policy. — It is
imperious need. Thus, the theory behind the hereby declared the policy of the State:
exercise of the power to tax emanates from
necessity; without taxes, government cannot (a) To ensure and accelerate the total
fulfill its mandate of promoting the general electrification of the country;
welfare and well-being of the people.
(b) To ensure the quality, reliability,
On the other hand, police power is the power security and affordability of the
of the state to promote public welfare by supply of electric power;
restraining and regulating the use of liberty
and property. It is the most pervasive, the (c) To ensure transparent and
least limitable, and the most demanding of the reasonable prices of electricity in a
three fundamental powers of the State. The regime of free and fair competition
justification is found in the Latin maxims salus and full public accountability to
populi est suprema lex (the welfare of the achieve greater operational and
people is the supreme law) and sic utere tuo economic efficiency and enhance
ut alienum non laedas (so use your property the competitiveness of Philippine
as not to injure the property of others). As products in the global market;
an inherent attribute of sovereignty which
virtually extends to all public needs, police (d) To enhance the inflow of private
power grants a wide panoply of instruments capital and broaden the ownership
through which the State, as parens patriae, base of the power generation,
gives effect to a host of its regulatory powers. transmission and distribution
We have held that the power to “regulate” sectors;
means the power to protect, foster, promote,
preserve, and control, with due regard for the (e) To ensure fair and non-
interests, first and foremost, of the public, discriminatory treatment of public
then of the utility and of its patrons. and private sector entities in the
process of restructuring the electric
The conservative and pivotal distinction power industry;
between these two powers rests in the
purpose for which the charge is made. (f) To protect the public interest
If generation of revenue is the primary as it is affected by the rates and

services of electric utilities and other administration of PSALM. The STF has some
providers of electric power; notable characteristics similar to the OPSF
and the SSF, viz.:
(g) To assure socially and
environmentally compatible energy 1. In the implementation of stranded cost
sources and infrastructure; recovery, the ERC shall conduct a review
to determine whether there is under-
(h) To promote the utilization of recovery or over recovery and adjust
indigenous and new and renewable (true-up) the level of the stranded cost
energy resources in power generation recovery charge. In case of an over-
in order to reduce dependence on recovery, the ERC shall ensure that any
imported energy; excess amount shall be remitted to the
STF. A separate account shall be created
(i) To provide for an orderly and for these amounts which shall be held in
transparent privatization of the trust for any future claims of distribution
assets and liabilities of the National utilities for stranded cost recovery. At the
Power Corporation (NPC); end of the stranded cost recovery period,
any remaining amount in this account
(j) To establish a strong and purely shall be used to reduce the electricity
independent regulatory body rates to the end-users.
and system to ensure consumer
protection and enhance the 2. With respect to the assailed Universal
competitive operation of the Charge, if the total amount collected
electricity market; and for the same is greater than the actual
availments against it, the PSALM shall
(k) To encourage the efficient use retain the balance within the STF to pay
of energy and other modalities of for periods where a shortfall occurs.
demand side management.
3. Upon expiration of the term of PSALM,
From the aforementioned purposes, it can be the administration of the STF shall be
gleaned that the assailed Universal Charge transferred to the DOF or any of the DOF
is not a tax, but an exaction in the exercise attached agencies as designated by the
of the State’s police power. Public welfare is DOF Secretary.
surely promoted.
The OSG is in point when it asseverates:
Moreover, it is a well-established doctrine
that the taxing power may be used as an Evidently, the establishment and
implement of police power. In Valmonte v. maintenance of the Special Trust
Energy Regulatory Board, et al. and in Gaston Fund, under the last paragraph of
v. Republic Planters Bank, this Court held that Section 34, R.A. No. 9136, is well
the Oil Price Stabilization Fund (OPSF) and the within the pervasive and non-
Sugar Stabilization Fund (SSF) were exactions waivable power and responsibility
made in the exercise of the police power. of the government to secure the
The doctrine was reiterated in Osmeña v. physical and economic survival and
Orbos with respect to the OPSF. Thus, we well-being of the community, that
disagree with petitioners that the instant comprehensive sovereign authority
case is different from the aforementioned we designate as the police power of
cases. With the Universal Charge, a Special the State.
Trust Fund (STF) is also created under the

This feature of the Universal Charge further prescribed by the law. These requirements
boosts the position that the same is an are denominated as the completeness test
exaction imposed primarily in pursuit of the and the sufficient standard test.
State’s police objectives. The STF reasonably
serves and assures the attainment and Under the first test, the law must be complete
perpetuity of the purposes for which the in all its terms and conditions when it leaves
Universal Charge is imposed, i.e., to ensure the legislature such that when it reaches the
the viability of the country’s electric power delegate, the only thing he will have to do
industry. is to enforce it. The second test mandates
adequate guidelines or limitations in the law
The Second Issue to determine the boundaries of the delegate’s
authority and prevent the delegation from
The principle of separation of powers running riot.
ordains that each of the three branches of
government has exclusive cognizance of and The Court finds that the EPIRA, read and
is supreme in matters falling within its own appreciated in its entirety, in relation to Sec.
constitutionally allocated sphere. A logical 34 thereof, is complete in all its essential
corollary to the doctrine of separation of terms and conditions, and that it contains
powers is the principle of non-delegation sufficient standards.
of powers, as expressed in the Latin maxim
potestas delegata non delegari potest (what Although Sec. 34 of the EPIRA merely
has been delegated cannot be delegated). provides that “within one (1) year from the
This is based on the ethical principle that such effectivity thereof, a Universal Charge to be
delegated power constitutes not only a right determined, fixed and approved by the ERC,
but a duty to be performed by the delegate shall be imposed on all electricity end-users,”
through the instrumentality of his own and therefore, does not state the specific
judgment and not through the intervening amount to be paid as Universal Charge, the
mind of another. amount nevertheless is made certain by the
legislative parameters provided in the law
In the face of the increasing complexity itself. For one, Sec. 43 (b) (ii) of the EPIRA
of modern life, delegation of legislative provides:
power to various specialized administrative
agencies is allowed as an exception to this SECTION 43. Functions of the ERC. — The
principle. Given the volume and variety of ERC shall promote competition, encourage
interactions in today’s society, it is doubtful if market development, ensure customer
the legislature can promulgate laws that will choice and penalize abuse of market power
deal adequately with and respond promptly in the restructured electricity industry. In
to the minutiae of everyday life. Hence, the appropriate cases, the ERC is authorized to
need to delegate to administrative bodies — issue cease and desist order after due notice
the principal agencies tasked to execute laws and hearing. Towards this end, it shall be
in their specialized fields — the authority responsible for the following key functions in
to promulgate rules and regulations to the restructured industry:
implement a given statute and effectuate
its policies. All that is required for the xxx xxx xxx
valid exercise of this power of subordinate
legislation is that the regulation be germane (b) Within six (6) months from the
to the objects and purposes of the law and effectivity of this Act, promulgate and enforce,
that the regulation be not in contradiction in accordance with law, a National Grid Code
to, but in conformity with, the standards and a Distribution Code which shall include,
but not limited to the following:
xxx xxx xxx “adequate and efficient instruction;” “public
interest;” “justice and equity;” “public
(ii) Financial capability standards for the convenience and welfare;” “simplicity,
generating companies, the TRANSCO, economy and efficiency;” “standardization
distribution utilities and suppliers: and regulation of medical education;” and
Provided, That in the formulation of “fair and equitable employment practices.”
the financial capability standards, the Provisions of the EPIRA such as, among
nature and function of the entity shall others, “to ensure the total electrification
be considered: Provided, further, That of the country and the quality, reliability,
such standards are set to ensure that security and affordability of the supply of
the electric power industry participants electric power” and “watershed rehabilitation
meet the minimum financial standards and management” meet the requirements
to protect the public interest. Determine, for valid delegation, as they provide the
fix, and approve, after due notice and limitations on the ERC’s power to formulate
public hearings the universal charge, to the IRR. These are sufficient standards.
be imposed on all electricity end-users
pursuant to Section 34 hereof; It may be noted that this is not the first
time that the ERC’s conferred powers were
Moreover, contrary to the petitioners’ challenged. In Freedom from Debt Coalition
contention, the ERC does not enjoy a wide v. Energy Regulatory Commission, the Court
latitude of discretion in the determination of had occasion to say:
the Universal Charge. Sec. 51 (d) and (e) of
the EPIRA clearly provides: In determining the extent of powers possessed
by the ERC, the provisions of the EPIRA must
SECTION 51. Powers. — The PSALM Corp. not be read in separate parts. Rather, the law
shall, in the performance of its functions and must be read in its entirety, because a statute
for the attainment of its objective, have the is passed as a whole, and is animated by
following powers: one general purpose and intent. Its meaning
cannot to be extracted from any single part
xxx xxx xxx thereof but from a general consideration
of the statute as a whole. Considering the
(d) To calculate the amount of the intent of Congress in enacting the EPIRA
stranded debts and stranded contract and reading the statute in its entirety, it is
costs of NPC which shall form the plain to see that the law has expanded the
basis for ERC in the determination of jurisdiction of the regulatory body, the ERC in
the universal charge; this case, to enable the latter to implement
the reforms sought to be accomplished by
(a) To liquidate the NPC stranded the EPIRA. When the legislators decided to
contract costs, utilizing the proceeds broaden the jurisdiction of the ERC, they did
from sales and other property not intend to abolish or reduce the powers
contributed to it, including the already conferred upon ERC’s predecessors.
proceeds from the universal charge. To sustain the view that the ERC possesses
only the powers and functions listed under
Thus, the law is complete and passes the first Section 43 of the EPIRA is to frustrate the
test for valid delegation of legislative power. objectives of the law.
As to the second test, this Court had, in In his Concurring and Dissenting Opinion in
the past, accepted as sufficient standards the same case, then Associate Justice, now
the following: “interest of law and order;” Chief Justice, Reynato S. Puno described

the immensity of police power in relation to Regulatory Commission where the Court
the delegation of powers to the ERC and its held that the ERC, as regulator, should have
regulatory functions over electric power as a sufficient power to respond in real time to
vital public utility, to wit: changes wrought by multifarious factors
affecting public utilities.
Over the years, however, the range of
police power was no longer limited to the From the foregoing disquisitions, we therefore
preservation of public health, safety and hold that there is no undue delegation of
morals, which used to be the primary social legislative power to the ERC.
interests in earlier times. Police power now
requires the State to “assume an affirmative Petitioners failed to pursue in their
duty to eliminate the excesses and injustices Memorandum the contention in the
that are the concomitants of an unrestrained Complaint that the imposition of the
industrial economy.” Police power is now Universal Charge on all end-users is
exerted “to further the public welfare — a oppressive and confiscatory, and amounts to
concept as vast as the good of society itself.” taxation without representation. Hence, such
Hence, “police power is but another name contention is deemed waived or abandoned
for the governmental authority to further per Resolution of August 3, 2004. Moreover,
the welfare of society that is the basic end the determination of whether or not a tax
of all government.” When police power is is excessive, oppressive or confiscatory is an
delegated to administrative bodies with issue which essentially involves questions of
regulatory functions, its exercise should be fact, and thus, this Court is precluded from
given a wide latitude. Police power takes on reviewing the same.
an even broader dimension in developing
countries such as ours, where the State As a penultimate statement, it may be well to
must take a more active role in balancing recall what this Court said of EPIRA:
the many conflicting interests in society.
The Questioned Order was issued by the One of the landmark pieces of legislation
ERC, acting as an agent of the State in the enacted by Congress in recent years is the
exercise of police power. We should have EPIRA. It established a new policy, legal
exceptionally good grounds to curtail its structure and regulatory framework for the
exercise. This approach is more compelling electric power industry. The new thrust is
in the field of rate-regulation of electric to tap private capital for the expansion and
power rates. Electric power generation and improvement of the industry as the large
distribution is a traditional instrument of government debt and the highly capital-
economic growth that affects not only a few intensive character of the industry itself
but the entire nation. It is an important factor have long been acknowledged as the critical
in encouraging investment and promoting constraints to the program. To attract private
business. The engines of progress may come investment, largely foreign, the jaded structure
to a screeching halt if the delivery of electric of the industry had to be addressed. While
power is impaired. Billions of pesos would be the generation and transmission sectors were
lost as a result of power outages or unreliable centralized and monopolistic, the distribution
electric power services. The State thru the side was fragmented with over 130 utilities,
ERC should be able to exercise its police mostly small and uneconomic. The pervasive
power with great flexibility, when the need flaws have caused a low utilization of existing
arises. generation capacity; extremely high and
uncompetitive power rates; poor quality of
This was reiterated in National Association of service to consumers; dismal to forgettable
Electricity Consumers for Reforms v. Energy performance of the government power

sector; high system losses; and an inability to and not one that is doubtful, speculative,
develop a clear strategy for overcoming these or argumentative. Indubitably, petitioners
shortcomings. failed to overcome this presumption in favor
of the EPIRA. We find no clear violation of
Thus, the EPIRA provides a framework for the Constitution which would warrant a
the restructuring of the industry, including pronouncement that Sec. 34 of the EPIRA and
the privatization of the assets of the National Rule 18 of its IRR are unconstitutional and
Power Corporation (NPC), the transition to void.
a competitive structure, and the delineation
of the roles of various government agencies WHEREFORE, the instant case is hereby
and the private entities. The law ordains the DISMISSED for lack of merit.
division of the industry into four (4) distinct
sectors, namely: generation, transmission, SO ORDERED.
distribution and supply. Corollarily, the NPC
generating plants have to privatized and its ANTONIO EDUARDO B. NACHURA
transmission business spun off and privatized Associate Justice
thereafter.
Puno, C.J., Quisumbing, Ynares-Santiago,
Finally, every law has in its favor the Sandoval-Gutierrez, Carpio, Austria-Martinez,
presumption of constitutionality, and to Corona, Carpio-Morales, Azcuna, Tinga,
justify its nullification, there must be a clear Chico-Nazario, Garcia and Velasco, Jr., JJ.,
and unequivocal breach of the Constitution concur.

SUPREME COURT
Manila
SECOND DIVISION
G.R. Nos. 176935-36 March 13, 2009
ZAMBALES II ELECTRIC COOPERATIVE, DORADO, EDWIN CORPUZ, E. ROGER

INC. (ZAMECO II) BOARD OF DIRECTORS, DOROPAN, JOSEFINA RAMIREZ, FERNANDO
JOSE S. DOMINGUEZ (PRESIDENT), ISAIAS BOGNOT, JR., CARMELITA DE GUZMAN,
Q. VIDUA (VICE-PRESIDENT), VICENTE M. MAXIMO DELOS SANTOS, AURELIO FASTIDIO,
BARRETO (SECRETARY), JOSE M. SANTIAGO BUENAVENTURA CELIS, ROBERTO LADRILLO,
(TREASURER), JOSE NASERIV C. DOLOJAN, CORAZON ACAYAN, CARLITO CARREON,
JUAN FERNANDEZ AND HONORIO DILAG, JR. EDUARDO GARCIA, MARCIAL VILORIA,
(MEMBERS), Petitioners, FILETO DE LEON AND MANUEL LEANDER,
Respondents.
versus
x-----------------------------------------------x
CASTILLEJOS CONSUMERS ASSOCIATION, INC.
(CASCONA), REPRESENTED BY DOMINADOR ZAMBALES II ELECTRIC COOPERATIVE,
GALLARDO, DAVID ESPOSO, CRISTITA INC. (ZAMECO II) BOARD OF DIRECTORS,

JOSE S. DOMINGUEZ (PRESIDENT), ISAIAS Dilag, Jr. (hereafter petitioners) are members
Q. VIDUA (VICE-PRESIDENT), VICENTE M. of the Board of Directors of the Zambales II
BARRETO (SECRETARY), JOSE M. SANTIAGO Electric Cooperative, Inc. (hereafter ZAMECO
(TREASURER), JOSE NASERIV C. DOLOJAN, II). ZAMECO II is an electric cooperative
JUAN FERNANDEZ AND HONORIO DILAG, JR. organized and registered under Presidential
(MEMBERS), Petitioners, Decree No. 269, as amended.
versus NEA is a government owned and controlled

corporation organized under Presidential
NATIONAL ELECTRIFICATION ADMINISTRA- Decree (PD) No. 269, as amended by PD No.
TION (NEA), NEA-OFFICE OF THE ADMIN- 1645.
ISTRATIVE COMMITTEE, ENGR. PAULINO T.
LOPEZ AND CASTILLEJOS CONSUMERS ASSO- Castillejos Consumers Associations, Inc.
CIATION, INC. (CASCONA), Respondents (hereafter CASCONA) is an organization of
electric consumers from the municipality of
x-----------------------------------------------x Castillejos, Zambales under the coverage area
of ZAMECO II.
DECISION
On November 21, 2002, CASCONA, through
TINGA, J.: its Board of Trustees, filed a letter-complaint
with NEA seeking the removal of the
Petitioners Zambales II Electric Cooperative, petitioners for the following alleged offenses:
Inc. (ZAMECO II) Directors, namely: Jose
S. Dominguez, Isaias Q. Vidua, Vicente M. a. illegal payment of 13th Month Pay and
Barreto, Jose M. Santiago, Jose Naseriv C. Excessive Mid-Year and Christmas Bonus
Dolojan, Juan Fernandez and Honorio Dilag, to petitioners;
Jr., assail the Decision dated October 4,
2006 of the Court of Appeals in CA-G.R. SP b. excessive expenses of the Board President,
No. 88195 and CA-G.R. SP No. 88845, and petitioner Mr. Jose S. Dominguez, charged
its Resolution dated March 13, 2007. The to ZAMECO Power Corporation (ZPC)
assailed Decision upheld the authority of and Central Luzon Power Transmission
public respondent National Electrification Development Corporation (CLPTDC) but
Administration (NEA) to supervise electric advanced by ZAMECO II and treated
cooperatives such as ZAMECO II and the power as receivables by the ZAMECO II from
of NEA to take preventive and/or disciplinary aforesaid corporations;
measures against an electric cooperative’s
board of directors, officers or employees. c. anomalous contract with Philreca
The questioned Resolution asserted the Management Corporation (PMC) for
continuing regulatory power of NEA over ZAMECO II’s Systems Loss Reduction
electric cooperatives under Republic Act No. Program; and
9136, otherwise known as the Electric Power
Industry Reform Act of 2001 (EPIRA). d. overstaying as members of the Board of
Directors of ZAMECO II.
The following facts are quoted from the
assailed Decision: The letter-complaint was essentially based on
the “Management and Financial Audit Report
Jose S. Dominguez, Isaias Q. Vidua, Vicente of Zambales II Electric Cooperative, Inc.
M. Barretto, Jose M. Santiago, Jose Naseriv (ZAMECO II) for the period from 01 January
C. Dolojan, Juan Fernandez and Honorio 1989 to 30 September 1997” dated June

1998 submitted by the Manager of the Coop After the issuance of said resolution, the
Systems Audit Division to the NEA. NEA-ADCOM resolved petitioners’ motion
for reconsideration in the assailed Decision5
After an exchange of pleadings between dated February 15, 2005.
herein parties, on March 12, 2003, the NEA-
Administrative Committee (NEA-ADCOM) In a Resolution dated April 5, 2005, then 7th
issued an Order setting the case for a Division of this Court granted the preliminary
preliminary mandatory conference. injunction in CA-G.R. SP No. 88195.
During the preliminary mandatory On March 29, 2005, petitioners filed the
conference, the parties agreed that: present petition for review docketed as CA-
G.R. SP. No. 88845.
a. ZAMECO II Board shall be given up
to November 15, 2003 to deliberate In a Resolution, dated August 22, 2005 issued
complainant’s proposed term of by then 17th Division of this Court, CA-G.R.
compromise; and SP No. 88195 and CA-G.R. SP No. 88845 were
ordered consolidated pursuant to section
b. If no compromise agreement is reached 3(a), Rule III of the 2002 Internal Rules of the
until November 15, 2003, the parties Court of Appeals, as amended.
shall submit verified/sworn “Position
Paper” in lieu of a formal type of hearing. The appellate court denied the consolidated
petitions on the ground that NEA properly
On November 19, 2003, CASCONA submitted exercised its supervisory power over ZAMECO
its position paper. For failure of petitioner to II. Corollary to this ruling is the Court of
file its position paper despite the extended Appeals’ declaration that petitioners have
period, the ADCOM considered the case not been deprived of due process in the
submitted for resolution. administrative proceedings. The appellate
court denied reconsideration.
On November 24, 2004, the NEA issued the
assailed Resolution. Petitioners filed a motion In the instant Petition for Review on Certiorari
for reconsideration thereto. dated March 22, 2007, petitioners argue that
NEA’s power to supervise and control electric
Without acting on petitioner’s motion for cooperatives had been abrogated by the
reconsideration, on December 21, 2004, the EPIRA which decreed that all outstanding
NEA issued the assailed Office Order dated financial obligations of electric cooperatives
December 21, 2004 prompting petitioners to NEA shall be assumed by the Power
to file the present petition for certiorari with Sector Assets and Liabilities Management
this Court docketed as CA-G.R. SP No. 88195. Corporation (PSALM Corp.). Petitioners
theorize that the regulatory authority which
In a Resolution dated February 7, 2005 in NEA exercises over electric cooperatives
CA-G.R. SP No. 88195, then 7th Division of exists only by virtue of the loans incurred by
this Court, issued a Temporary Restraining the latter from NEA. With the condonation
Order (TRO) valid for sixty (60) days enjoining of these loans ordained under the EPIRA,
the NEA, NEA-ADCOM and CASCONA from NEA’s power to supervise and control electric
enforcing or implementing the Resolution cooperatives had allegedly become defunct.
dated November 24, 2004, Office Order No.
2005-003, Series of 2004 dated December 21, Petitioners insist that they were denied
2004. due process as they were never notified of
the charges against them based on the July

24, 2003 Audit Report (2003 Audit Report). and required petitioners to submit their
Allegedly, petitioners had been asked to explanation thereon on or before September
respond only to the charges under the June 16, 2003. The audit exceptions in the 2003
25, 1998 Audit Report (1998 Audit Report). Audit Report allegedly pertain to issues which
were already raised in CASCONA’s complaint
Finally, petitioners argue that NEA’s filed with NEA and which persisted as found
Office of the Administrative Committee in the 2003 Audit Report. Thus, petitioners
(ADCOM) does not have the authority to cannot claim that the 2003 Audit Report was
hear election-related cases. The questions not made known to them.
raised by respondent Castillejos Consumers
Association, Inc. (CASCONA), such as whether CASCONA also argues that the issue pertaining
a director of an electric cooperative is already to petitioners’ overstaying in office is an
overstaying in office or is qualified to run for administrative and not an election-related
re-election, are allegedly election-related matter. The fact that there was no election
cases properly addressed to the Screening scheduled at all negates the assertion of
Committee in accordance with the Guidelines petitioners that the issue is a pre-election
on the Conduct of Electric Cooperative District protest.
Elections (NEA Election Code).
Petitioners filed a Consolidated Reply dated
NEA asserts in its Comment dated June 20, November 15, 2007, tracing the provenance
2007, that the EPIRA did not abrogate its of NEA’s supervisory power over electric
regulatory power over electric cooperatives cooperatives. According to petitioners, with
and that its authority to supervise and control the passing of the EPIRA and E.O. No. 460,
the latter does not emanate solely from the the borrower-lender relationship between
cooperatives’ loan agreements with NEA. The ZAMECO II and NEA, by virtue of which the
EPIRA itself allegedly enhances the powers of latter exercises regulatory powers over
the NEA and, together with Executive Order ZAMECO II, had been severed as of June
No. 460, Series of 2005 (E.O. No. 460), does 26, 2006. Thus, the Energy Regulatory
not expressly or even impliedly state that Commission (ERC) is now the only regulatory
the assumption by PSALM Corp. of (electric agency which has jurisdiction over players in
cooperatives’) debts to NEA carries with it the the power industry.
abrogation of the latter’s power to impose
disciplinary action. Petitioners insist that they had been deprived
of due process as they were never heard on
Furthermore, NEA refutes petitioners’ the charges as stated in the 2003 Audit Report
allegation that they were denied due process cited as the bases for three (3) of the five (5)
in the administrative proceedings, insisting offenses in the Resolution of the NEA dated
that they were sent notices of the audit November 24, 2004, which directed, among
proceedings conducted by NEA. other things, their removal from office.
In its Comment dated June 22, 2007, In a Supplemental Petition dated November
CASCONA avers that there is no connection 3, 2008, petitioners inform the Court that
between PSALM Corp.’s assumption of the it had registered as a cooperative under
loan obligations of electric cooperatives and the Cooperative Development Authority
NEA’s power to impose disciplinary action (CDA) and had been issued a Certificate of
against petitioners. It also points out that the Registration dated December 4, 2007. They
Deputy Administrator of NEA furnished a copy also inform the Court that CASCONA members
of the highlights of the 2003 Audit Report to had taken over the grounds of ZAMECO II and
petitioners in a letter dated August 15, 2003, that NEA, in a letter dated October 30, 2008,

designated Engineer Alvin Farrales as Officer- Sec. 10, Chapter II of P.D. No. 269, enumerating
in-Charge of ZAMECO II. the instances when NEA may avail of the
remedies outlined in the law, including, as
NEA filed a Comment dated November 18, previously mentioned, the removal from
2008, asserting that ZAMECO II’s registration office of any or all of the members of the
with the CDA should be revoked since it Board of Directors, officers or employees of
failed to comply with the requirement under the electric cooperative. These instances are
the EPIRA for it to be first convert into a when the electric cooperative concerned
stock cooperative prior to its registration as or other similar entity fails after due notice
an electric cooperative with the CDA. With to comply: (1) with NEA orders, rules and
the ineffectivity of ZAMECO II’s registration regulations and/or decisions; or (2) with any
with the CDA, it follows that NEA retains of the terms of the Loan Agreement. Had the
its supervisory and regulatory powers over existence of a creditor-debtor relationship
ZAMECO II. between the parties been the sole vinculum
which the law intended as a precondition
CASCONA, for its part, also insists on the for NEA’s exercise of regulatory powers over
continuing supervisory power of the NEA electric cooperatives, there would not have
over ZAMECO II as the latter did not comply been any need for the above distinction.
with the pre-conditions for its registration as
a cooperative under the CDA. The passage of the EPIRA and its creation of
PSALM Corp. which assumed all outstanding
Fundamental to the resolution of this case is financial obligations of electric cooperatives
the determination of the power and authority did not affect the power of the NEA particularly
which NEA can properly exercise in light of the over administrative cases involving the board
recently passed EPIRA and executive orders of directors, officers and employees of electric
bearing on the power industry, particularly cooperatives. This authority is expressly
E.O. No. 119 series of 2002 and E.O. No. 460 recognized under the last paragraph of Sec.
series of 2005. 58, Chapter VII of the EPIRA which states
that, “NEA shall continue to be under the
P.D. No. 269, as amended by P.D. No. 1645, supervision of the DOE and shall exercise its
vested NEA with the authority to supervise and functions under Presidential Decree No. 269,
control electric cooperatives. In the exercise as amended by Presidential Decree No. 1645
of its authority, it has the power to conduct insofar as they are consistent with this Act.”
investigations and other similar actions in all
matters affecting electric cooperatives. The Remarkably, even as they continually assert
failure of electric cooperatives to comply that NEA’s regulatory authority over electric
with NEA orders, rules and regulations and/ cooperatives had been abrogated by the
or decisions authorizes the latter to take EPIRA, petitioners fail to cite passages of the
preventive and/or disciplinary measures, latter law which are supposedly inconsistent
including suspension and/or removal and with the powers granted to NEA under
replacement of any or all of the members of P.D. Nos. 269 and 1645 and which should
the Board of Directors, officers or employees accordingly be deemed to have been withheld
of the electric cooperative concerned. from it.
Contrary to petitioners’ assertion, NEA’s A review of the provisions of the EPIRA

regulatory power over electric cooperatives is reveals that the ERC has been given the
not dependent on the existence of a creditor- specific mandate to “promote competition,
debtor relationship between the former encourage market development, ensure
and the latter. This is clear from the express customer choice and penalize abuse of
wording of Sec. 5 of P.D. No. 1645, amending market power in the restructured electricity
industry.” PSALM Corp., on the other hand, Report shall accordingly be considered final.
was created in order to “manage the orderly
sale, disposition, and privatization of NPC Petitioners were also given three (3) 30-
generation assets, real estate and other day extensions within which to submit their
disposable assets, and IPP contracts with explanation/justification. Thus, in the letter
the objective of liquidating all NPC financial dated November 20, 2003, petitioners were
obligations and stranded contract costs in an given up to November 28, 2003 to explain
optimal manner.” Obviously, the functions of the audit findings, failing which the 2003
these two agencies do not come into conflict Audit Report shall be considered final as of
and are not inconsistent with the supervisory November 29, 2003.
power exercised by NEA in the instant case.
In yet another letter dated July 21, 2004,
Furthermore, Sec. 8 of E.O. No. 119 specifically petitioners were informed that the
provides that, “The assumption by PSALM of explanation given on some of the audit
the Rural Electrification Loan/s of an EC shall findings was not acceptable and that the
be revoked for failure to continually comply refund of the disallowed expenses covered
with Section 5 of this Executive Order…” Sec. in the Audit Report should follow. However,
5, in turn, provides that the assumption of note should be taken of the fact that the
Rural Electrification Loans shall be effective letters dated November 20, 2003 and July 21,
upon compliance with certain terms and 2004 were sent by the Cooperatives Audit
conditions, among which, is the continued Department and not by the ADCOM which
compliance by the electric cooperatives with was then conducting the administrative
all NEA policies governing their relationship investigation of CASCONA’s letter-complaint.
with NEA pursuant to P.D. Nos. 269 and 1645.
These provisions explicitly recognize the The first time that the 2003 Audit Report
continued authority of the NEA over electric was expressly mentioned in the ADCOM
cooperatives and the requirement for the proceedings was when CASCONA submitted
latter to remain compliant with NEA policies the report together with its Position Paper
on pain of having the assumption of their dated November 14, 2003. Yet, even when
loan obligations by PSALM Corp. revoked. the ADCOM issued its Order dated April 13,
2004, giving petitioners an extension of ten
However, we agree with petitioners’ (10) days within which to file their Position
contention that they were deprived of due Paper, there was no indication at all that
process in the administrative proceedings the contents of the 2003 Audit Report shall
before the NEA insofar as they were not be considered by the ADCOM as additional
informed that the audit disallowances charges in the administrative proceedings.
contained in the 2003 Audit Report would
constitute additional charges in the Parenthetically, both the audit investigation
administrative proceedings. and the administrative investigation on
account of CASCONA’s letter-complaint were
The records disclose that petitioners were administrative proceedings. The difference
furnished with a copy of the 2003 Audit Report between the two is that in ruling that
by the Chief Operating Officer of NEA in a petitioners had violated various guidelines
letter dated August 15, 2003, and were asked pertaining to electric cooperatives and
to submit their explanation and action plan imposing the penalty of removal from office,
on the audit findings and recommendations NEA exercised a function which was decidedly
on or before September 16, 2003. Petitioners quasi-judicial in nature. As such, NEA’s
were warned that their failure to submit an compliance with due process requirements
explanation shall be deemed a waiver of their should be evaluated based on the standard
opportunity to be heard and that the Audit set forth in Ang Tibay v. CIR, pertaining to
the cardinal rights which must be observed in no order shall issue finally determining and
proceedings before administrative tribunals, substantially affecting any right of any person
synthesized in a subsequent case as follows: subject to the NEA’s jurisdiction without
There are cardinal primary rights which must first affording such person and any other
be respected even in proceedings of this interested person opportunity for hearing as
character. The first of these rights is the right a party in the hearing proceeding. [Emphasis
to a hearing, which includes the right of the supplied]
party interested or affected to present his
own case and submit evidence in support It may be pointed out that in the Order dated
thereof. Not only must the party be given an November 6, 2003, the ADCOM mentioned
opportunity to present his case and to adduce an agreement between the parties that
evidence tending to establish the rights which the submission of their respective position
he asserts but the tribunal must consider papers shall be in lieu of formal trial-type
the evidence presented. While the duty to proceedings. This agreement, however,
deliberate does not impose the obligation to preceded CASCONA’s mention of the 2003
decide right, it does imply a necessity which Audit Report on November 13, 2003.
cannot be disregarded, namely, that of having Therefore, it binds petitioners only insofar
something to support its decision. Not only as they have effectively waived a “hearing
must there be some evidence to support a proceeding” on the 1998 Audit Report but
finding or conclusion, but the evidence must not with respect to the 2003 Audit Report.
be substantial. The decision must be rendered
on the evidence presented at the hearing, or Incidentally, under the 2005 Administrative
at least contained in the record and disclosed Rules of Procedure of the National
to the parties affected. Electrification Administration and its
Administrative Committee, which governs the
Moreover, P.D. No. 269, from which NEA procedure in administrative cases of electric
derives its jurisdiction over the controversy, cooperatives’ Board of Directors, officers and
contains an express provision that a “hearing employees, the ADCOM or Hearing Officer
proceeding” be conducted wherein the party is mandated to determine whether there is
whose rights shall be substantially affected a need for a formal trial or hearing after the
by the exercise of NEA’s jurisdiction shall be submission of the parties’ respective position
given the opportunity to be heard. Sec. 47 of papers.
the law states:
In Globe Telecom, Inc. v. National
Sec. 47. Hearings and Investigations.—The Telecommunications Commission, supra,
NEA is empowered to conduct such hearings the Court invalidated a fine imposed by the
and investigations and to issue such orders NTC on Globe (due to the latter’s alleged
as are necessary for it to implement the lack of authority to operate SMS services)
provisions of this Chapter, and in connection on the ground that Globe was never notified
therewith, without necessity of previous that its authority to operate SMS was put in
hearing, to require any public service entity issue. The Court emphasized the need for a
or the officials thereof to furnish to it such hearing before any punitive measure may
information and data, including statements of be undertaken by an administrative agency
account, schedules of rates, fees and charges, in the exercise of its quasi-judicial functions.
contracts, service rules and regulations, The Court said:
articles of incorporation, by-laws, audit reports
and other internal records, documents, Sec. 21 requires notice and hearing because
policies and procedures, as will enable the fine is a sanction, regulatory and even
NEA to be sufficiently informed in exercising punitive in character. Indeed, the requirement
its powers and authorities: Provided, That is the essence of due process. Notice and
hearing are the bulwark of administrative such, the total amount of P3,680,425.00 were
due process, the right to which is among the disallowed in audit and charged back to each
primary rights that must be respected even Director as receivable.
in administrative proceedings. The right is
guaranteed by the Constitution itself and does Under the 1998 Audit Report, the details of
not need legislative enactment. The statutory the findings regarding the illegal 13th month
affirmation of the requirement serves merely pay and excessive Mid-year and Christmas
to enhance the fundamental precept. The bonus are as follows:
right to notice and hearing is essential to due
process and its non-observance will, as a rule, 5. Board of Directors and GM Excessive
invalidate the administrative proceedings. Bonuses/Allowances
Nonetheless, we hesitate to declare the During the period audited, January 1989
entire proceedings undertaken by the to September 1997, the Board of Directors
ADCOM void if only because petitioners received/claimed various benefits which
were given fair and ample opportunity to were in violation of NEA guidelines:
present their side with respect to CASCONA’s
charges covered by the 1998 Audit Report. a. 13th Month Pay
Specifically, the charges of illegal payment
This benefit is only granted
of 13th month pay and excessive bonuses/
to regular employees of the
allowances claimed by petitioners in violation
coop. Amount received by the
of a NEA Memorandum and overstaying
Board ranges from P5,000.00 to
as members of the Board of Directors were
P15,000.00.
duly established by the evidence on record.
It should be mentioned, in this regard, that
b. Anniversary Bonus
the issue that petitioners had overstayed in
office is not so much election-related as it There was no specific NEA
is connected to the allegation that they had guideline allowing the granting
committed serious misconduct and deliberate of such benefit but the
negligence in office. Board Directors and the GM
claimed bonuses of P300.00 to
In its Resolution dated November 24, 2004, P10,000.00 from 1990-1996.
the NEA quoted the following findings of
its audit team and the CASCONA complaint c. Mid-Year/Year-end Bonuses
and found sufficient evidence to justify the
penalty of removal from office meted against Per NEA memo # 35, the EC
petitioners: may grant mid-year and year-
end bonuses of P500.00 and
The Audit Report dated 25 June 1998, showed equivalent to one month per
that ZAMECO II Board of Directors claimed diem/salary to its officers and
13th month pay, Anniversary bonus, Mid- employees respectively as long
year/Year-end Bonuses, Medical/clothing as all the four (4) criteria are met.
allowances, Prompt Payment Discount Bonus, lawphil.net During the period
and Separation Pay from January 1989 to under audit, only one criteria
September 1997. current with NPC was met.
However, the Board Directors
The Audit Team’s findings that the grant claimed mid-year bonuses from
of benefits/allowances/bonuses to the P2,000.00 to P20,000.00 and
members of the Board were in violation of Christmas bonus from P5,000.00
NEA guidelines and without legal basis and as to P47,555.
d. Medical/clothing Allowances years (three term) to the present
two consecutive terms (or a total of
The allowed allowances for six years)” pursuant to NEA Board
coop officers and employees of Administrator Resolution No. 38,
per Memo #35 for medical Series of 1999.
and clothing allowance were
P2,000.00 and P1,000.00 It is an undisputed fact that the term
(increased to P1,500.00 in of office of most of the members of
1996) respectively but what was the Board of Directors of ZAMECO
granted to the Board ranges II had already expired. They remain
from P2,500.00 to P10,000.00 as members of the Board on a hold
over capacity since the coop’s district
e. Prompt Payment Discount Bonus elections are not being conducted
regularly which is a clear violation of
From 1989 to 1994, the Board the 1993 Guidelines on the Conduct
Directors and the GM were of District Election, as amended, and
receiving additional monthly ZAMECO II Constitution and By-Laws.
Prompt Payment Discount (PPD)
bonus of P1,500.00 each. Thus, even if the other charges based on
the 2003 Audit Report, on which petitioners
xxx were not heard, were disregarded, there is
indeed substantial evidence to justify the
The Audit Report dated 25 June 1998 penalty of removal from office imposed by
covering the period January 01, 1989 the NEA.1avvphi1
to September 30, 1997 showed that
“the district elections of ZAMECO II The foregoing, notwithstanding, the apparent
Board of Directors are long overdue registration of ZAMECO II with the CDA on
which deprived the members of December 4, 2007 would ultimately bear on
the right to choose or change their the question of whether NEA can still enforce
district representative. The holdover its Resolution dated November 24, 2004
stay of the incumbent directors also and Decision dated February 15, 2005, as
affects the operations of the coop affirmed by the Court of Appeals and by the
because no election of officers is Court herein.
being made.”
Respondents NEA and CASCONA uniformly
Under Section 13, Article III of the assert the invalidity of ZAMECO II’s CDA
1993 Guidelines on the Conduct Registration on the ground that ZAMECO
of District Elections for Electric II allegedly did not follow the procedure
Cooperatives, it expressly provides outlined in the EPIRA and the Rules and
that “the term of office of a regularly Regulations to Implement Republic Act No.
elected member of the Board of 9136 (EPIRA Implementing Rules) for an
Directors shall be three (3) years. electric cooperative to first convert into a
Such member shall be entitled to stock cooperative as a precondition to its
only one consecutive re-election.” registration with the CDA.
However, the above 1993 EC Election Sec. 57, Chapter VII of the EPIRA provides
Code was amended, specifically the that, “Electric cooperatives are hereby
Term of Office of the EC Board of given the option to convert into either
Directors by “adding another term stock cooperative under the Cooperatives
of three years for a total of nine Development Act or stock corporation under
the Corporation Code x x x” Sec. 7, Rule VII WHEREFORE, the instant case is hereby
of the EPIRA Implementing Rules, in turn, REMANDED to the Court of Appeals for
provides as follows: further proceedings in order to determine
whether the procedure outlined in Republic
Sec. 7. Structural and Operational Act No. 9136, otherwise known as the Electric
Reforms Between and Among Power Industry Reform Act of 2001, and its
Distribution Utilities.… Implementing Rules for the conversion of an
electric cooperative into a stock cooperative
(c) Pursuant to Section 57 of the Act, ECs under the Cooperative Development
are given the option to convert into Stock Authority had been complied with. The
Cooperatives under the CDA or Stock Court of Appeals is directed to raffle this case
Corporations under the Corporation immediately upon receipt of this Decision
Code. Nothing contained in the Act and to proceed accordingly with all deliberate
shall deprive ECs of any privilege or dispatch. Thereafter, it is directed to forthwith
grant granted to them under Section transmit its findings to this Court for final
39 of Presidential Decree No. 269, as adjudication. No pronouncement as to costs.
amended, and other existing laws. The SO ORDERED.
conversion and registration of ECs shall
be implemented in the following manner: DANTE O. TINGA
Associate Justice
(i) ECs shall, upon approval of a simple WE CONCUR:
majority of the required number
of turnout of voters as provided LEONARDO A. QUISUMBING
in the Guidelines in the Conduct Acting Chief Justice
of Referendum (Guidelines), in Chairperson
a referendum conducted for such
purpose, be converted into a Stock CONCHITA CARPIO MORALES
Cooperative or Stock Corporation Associate Justice
and thereafter shall be governed
PRESBITERO J. VELASCO, JR.
by the Cooperative Code of the
Associate Justice
Philippines or the Corporation Code,
as the case may be. The NEA, within ARTURO D. BRION
six (6) months from the effectivity Associate Justice
of these Rules, shall promulgate
the guidelines in accordance with
Section 5 of Presidential Decree No. CERTIFICATION
1645.…
Pursuant to Section 13, Article VIII of the
Whether ZAMECO II complied with the Constitution, it is hereby certified that the
foregoing provisions, particularly on the conclusions in the above Decision had been
conduct of a referendum and obtainment of reached in consultation before the case was
a simple majority vote prior to its conversion assigned to the writer of the opinion of the
into a stock cooperative, is a question of Court’s Division.
fact which this Court shall not review. At
any rate, the evidence on record does not LEONARDO A. QUISUMBING
afford us sufficient basis to make a ruling on Acting Chief Justice
the matter. The remand of the case to the
Court of Appeals solely on this question is,
therefore, proper.
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 180345 November 25, 2009
SAN ROQUE POWER CORPORATION, with Section 112 of the NIRC of 1997 for
Petitioner, unutilized input VAT paid on zero-rated or
effectively zero-rated sales and purchases of
versus capital goods, to wit:
COMMISSIONER OF INTERNAL REVENUE, SEC. 112. Refunds or Tax Credits of Input Tax.
Respondent –
x--------------------------------------------x (A) Zero-rated or Effectively Zero-rated

Sales—Any VAT-registered person, whose
DECISION sales are zero-rated or effectively zero-rated
may, within two (2) years after the close of
CHICO-NAZARIO, J.: the taxable quarter when the sales were
made, apply for the issuance of a tax credit
In this Petition for Review on Certiorari, certificate or refund of creditable input tax
under Rule 45 of the Revised Rules of Court, due or paid attributable to such sales, except
petitioner San Roque Power Corporation transitional input tax, to the extent that such
assails the Decision1 of the Court of Tax Appeals input tax has not been applied against output
(CTA) En Banc dated 20 September 2007 in tax: Provided, however, That in the case of
CTA EB No. 248, affirming the Decision2 dated zero-rated sales under Section 106(A)(2)(a)
23 March 2006 of the CTA Second Division in (1), (2) and (B) and Section 108 (B)(1) and
CTA Case No. 6916, which dismissed the claim (2), the acceptable foreign currency exchange
of petitioner for the refund and/or issuance proceeds thereof had been duly accounted for
of a tax credit certificate in the amount in accordance with the rules and regulations
of Two Hundred Forty-Nine Million Three of the Bangko Sentral ng Pilipinas (BSP):
Hundred Ninety-Seven Thousand Six Hundred Provided, further, That where the taxpayer
Twenty Pesos and 18/100 (P249,397,620.18) is engaged in zero-rated or effectively zero-
allegedly representing unutilized input Value rated sale and also in taxable or exempt sale
Added Tax (VAT) for the period covering of goods or properties or services, and the
January to December 2002. amount of creditable input tax due or paid
cannot be directly and entirely attributed
Respondent, as the Commissioner of to any one of the transactions, it shall be
the Bureau of Internal Revenue (BIR), is allocated proportionately on the basis of the
responsible for the assessment and collection volume of sales.
of all national internal revenue taxes, fees,
and charges, including the Value Added Tax (B) Capital Goods—A VAT-registered person
(VAT), imposed by Section 1083 of the National may apply for the issuance of a tax credit
Internal Revenue Code (NIRC) of 1997. certificate or refund of input taxes paid on
Moreover, it is empowered to grant refunds capital goods imported or locally purchased,
or issue tax credit certificates in accordance to the extent the such input taxes have not
been applied against output taxes. The Because of the exclusive nature of the PPA
application may be made only within two (2) between petitioner and the NPC, petitioner
years after the close of the taxable quarter applied for and was granted five Certificates
when the importation or purchase was made. of Zero Rate by the BIR, through the Chief
Regulatory Operations Monitoring Division,
On the other hand, petitioner is a domestic now the Audit Information, Tax Exemption
corporation organized under the corporate & Incentive Division. Based on these
laws of the Republic of the Philippines. On certificates, the zero-rated status of petitioner
14 October 1997, it was incorporated for commenced on 27 September 1998 and
the sole purpose of building and operating continued throughout the year 2002.8
the San Roque Multipurpose Project in San
Manuel, Pangasinan, which is an indivisible For the period January to December 2002,
project consisting of the power station, the petitioner filed with the respondent its
dam, spillway, and other related facilities.4 It Monthly VAT Declarations and Quarterly VAT
is registered with the Board of Investments Returns. Its Quarterly VAT Returns showed
(BOI) on a preferred pioneer status to excess input VAT payments on account of its
engage in the design, construction, erection, importation and domestic purchases of goods
assembly, as well as own, commission, and and services, as follows:
operate electric power-generating plants and
related activities, for which it was issued the
2nd July Tax Due for the P blank
Certificate of Registration No. 97-356 dated Quarter 24, Quarter (Box 13C)
11 February 1998.5 As a seller of services, 2002
(April 1, Input Tax carried 237,950,763.19
petitioner is registered with the BIR as a VAT 2002 to over from previous
taxpayer under Certificate of Registration No. June 30,
qtr (22B)
OCN-98-006-007394.6 2002) Input VAT on
Domestic Purchases
for the Qtr
On 11 October 1997, petitioner entered into
a Power Purchase Agreement (PPA) with the (22D) 65,206,499.83
National Power Corporation (NPC) to develop Input VAT on

Importation of
the hydro potential of the Lower Agno River, Goods for the Qtr
and to be able to generate additional power (22F) 18,485,758.00
and energy for the Luzon Power Grid, by
Total Available 321,643,021.02
developing and operating the San Roque Input tax (23)
Multipurpose Project. The PPA provides VAT Refund/TCC 237,950,763.19
that petitioner shall be responsible for the Claimed (24A)
design, construction, installation, completion Net Creditable 83,692,257.83
and testing and commissioning of the Power Input Tax (25)
Station and it shall operate and maintain the VAT payable (Excess (83,692,257.83)
same, subject to the instructions of the NPC. Input Tax) (26)
During the cooperation period of 25 years Tax Payable (83,692,257.83)

(overpayment) (28)
commencing from the completion date of the
Power Station, the NPC shall purchase all the
electricity generated by the Power Plant.7

4th January Tax Due for the P 34,996.36 Petitioner amended its Quarterly VAT Returns,
Quarter 23, Quarter (Box 13C) particularly the items on (1) Input VAT on
2003 Input Tax carried 114,082,153.62
(October 1,
over from previous Domestic Purchases during the first quarter
2002 to
qtr (22B) of 2002; (2) Input VAT on Domestic Purchases
December Input VAT on for the fourth quarter of 2002; and (3) Input
31, 2002) Domestic Purchases
for the Qtr
VAT on Importation of Goods for the fourth
(22D) 18,166,330.54 quarter of 2002. The amendments read as
Input VAT on follows:
Importation of
Goods for the Qtr Period Date
(22F) 2,308,837.00 Particu-lars Amount
covered Filed
Input tax (23) 1st April Tax Due for the P 26,247.27
VAT Refund/TCC 83,692,257.83 Quarter 24, Quarter (Box
Claimed (24A) 2003 13C)
(January
Net Creditable 50,865,063.33 1, 2002 Input Tax 297,719,296.25
Input Tax (25) to carried over
VAT payable (Excess (50,830,066.97) from previous
Input Tax) (26) March qtr (22B)
Tax Payable (50,830,066.97) 31, 2002)
Input VAT
(overpayment) (28)
on Domestic
Purchases for
On 19 June 2002, 25 October 2002, 27 the Qtr
February 2003, and 29 May 2003, petitioner (22D) 95,126,981.69
filed with the BIR four separate administrative
claims for refund of Unutilized Input VAT paid (22F) 20,758,668.00
for the period January to March 2002, April Total Available 413,604,945.94
to June 2002, July to September 2002, and Input tax (23)
October to December 2002, respectively. VAT Refund/ 175,544,002.27
TCC Claimed
In these letters addressed to the BIR, Carlos (24A)
Echevarria (Echevarria), the Vice President
Net Creditable 175,544,002.27
and Director of Finance of petitioner, Input Tax (25)
explained that petitioner’s sale of power to VAT payable (238,060,943.67)
NPC are subject to VAT at zero percent rate, (Excess Input
in accordance with Section 108(B)(3) of the Tax) (26)
NIRC.10 Petitioner sought to recover the total Tax Payable (238,034,696.40)
(overpayment)
amount of P250,258,094.25, representing its
(28)
unutilized excess VAT on its importation of
capital and other taxable goods and services
for the year 2002, broken down as follows:
Qtr
Output Tax Input Tax
Involved
Domestic
Importations Excess Input Tax
Purchases
(D) = (B) + (C)
(A) (B) (C)
–(A)
1st P 26,247.27 P95,003,348.91 P20,758,668.00 P115,735,769.84
2nd - 65,206,499.83 18,485,758.00 83,692,257.83
3rd - 28,924,020.79 1,465,875.00 30,389,895.79
4th 34,996.36 18,166,330.54 2,308,837.00 20,440,171.18
P61,243.63 P207,300,200.07 P43,019,138.00 P250,258,094.44

2nd April Tax Due for the P blank 4th January Tax Due for the P 34,996.36
Quarter 24, Quarter (Box 13C) Quarter 23, Quarter (Box 13C)
2003 2003 Input Tax carried 114,082,153.62
(April 1, Input Tax carried 238,034,696.40 (October
1, 2002 to over from
2002 to over from
previous qtr (22B)
previous qtr (22B) December
June 30, Input VAT
2002) Input VAT 31, 2002) on Domestic
on Domestic Purchases for the
Purchases for Qtr
the Qtr (22D) 17,918,056.50
(22D) 65,206,499.83 Input VAT on
Importation of
Input VAT on
Goods for the Qtr
Importation of
Goods for the Qtr (22F) 1,573,004.00
(22F) 18,485,758.00
Input tax (23)
Total Available 321,643,021.02 VAT Refund/TCC 83,692,257.83
Input tax (23) Claimed (24A)
VAT Refund/TCC 237,950,763.19 Net Creditable 49,880,956.29
Claimed (24A) Input Tax (25)
Net Creditable 83,692,257.83 VAT payable (49,845,959.93)
Input Tax (25) (Excess Input Tax)
(26)
VAT payable (83,692,257.83)
(Excess Input Tax) Tax Payable (49,845,959.93)
(26) (overpayment)
(28)
Tax Payable (83,692,257.83)
(overpayment)
(28)
On 30 May 2003 and 31 July 2003, petitioner
filed two letters with the BIR to amend its
claims for tax refund or credit for the first
3rd Oct. Tax Due for the P blank
Quarter 25, Quarter (Box 13C) and fourth quarter of 2002, respectively.
(July 1,
2002 Input Tax carried 83,692,257.83 Petitioner sought to recover a total amount of
2002 over from previous P249,397,620.18 representing its unutilized
to qtr (22B) excess VAT on its importation and domestic
Sept. Input VAT on purchases of goods and services for the year
Domestic Purchases
30, 2002, broken down as follows:
2002) for the Qtr
(22D) 28,924,020.79
Input VAT on
Importation of
Goods for the Qtr
(22F) 1,465,875.00
Input tax (23)
VAT Refund/TCC Blank
Claimed (24A)
Net Creditable Input 114,082,153.62
Tax (25)
VAT payable (Excess (114,082,153.62)
Input Tax) (26)
Tax Payable (114,082,153.62)
(overpayment) (28)

Qtr
Date Filed Output Tax Input Tax
Involved
Domestic Importations Excess Input Tax

Purchases
(D) = (B) + (C)

(A) (B) (C)
–(A)
1st 30- P 26,247.27 P95,126,981.69 P20,758,668.00 P115,859,402.42
May-
03
2nd 25- - 65,206,499.83 18,185,758.00 83,692,257.83
Oct-
02
3rd 27- - 28,924,920.79 1,465,875,00 30,389,895.79
Feb-
03
4th 31- 34,996.36 17,918,056.50 1,573,004.00 19,456,064.14
Jul-
03
P61,243.63 P207,175,558.81 P42,283,305.00 P249,397,620.18
Respondent failed to act on the request for year 2002, with comparative figures for 2001,
tax refund or credit of petitioner, which marked as Exhibit “K”; and (5) the Affidavit of
prompted the latter to file on 5 April 2004, Echevarria dated 9 February 2005, marked as
with the CTA in Division, a Petition for Review, Exhibit “L”.15
docketed as CTA Case No. 6916 before it could
be barred by the two-year prescriptive period During the hearings, the parties jointly
within which to file its claim. Petitioner sought stipulated on the issues involved:
the refund of the amount of P249,397,620.18
representing its unutilized excess VAT on its 1. Whether or not petitioner’s sales are
importation and local purchases of various subject to value-added taxes at effectively
goods and services for the year 2002. zero percent (0%) rate;
During the proceedings before the CTA 2. Whether or not petitioner incurred
Second Division, petitioner presented the input taxes which are attributable to its
following documents, among other pieces of effectively zero-rated transactions;
evidence: (1) Petitioner’s Amended Quarterly
VAT return for the 4th Quarter of 2002 3. Whether or not petitioner’s importation
marked as Exhibit “A,” showing the amount of and purchases of capital goods and
P42,500,000.00 paid by NTC to petitioner for related services are within the scope
all the electricity produced during test runs; and meaning of “capital goods” under
(2) the special audit report, prepared by the Revenue Regulations No. 7-95;
CPA firm of Punongbayan and Araullo through
a partner, Angel A. Aguilar (Aguilar), and the 4. Whether or not petitioner’s input taxes
attached schedules, marked as Exhibits “J- are sufficiently substantiated with VAT
2” to “J-21”; (3) Sales Invoices and Official invoices or official receipts;
Receipts and related documents issued to
petitioner for the year 2002, marked as 5. Whether or not the VAT input taxes
Exhibits “J-4-A1” to “J-4-L265”; (4) Audited being claimed for refund/tax credit by
Financial Statements of Petitioner for the petitioner (had) been credited or utilized

against any output taxes or (had) been directly or indirectly in the production or sale
carried forward to the succeeding quarter of taxable goods and services. The CTA found
or quarters; and that the evidence offered by petitioner—
the suppliers’ invoices and official receipts
6. Whether or not petitioner is entitled to and Import Entries and Internal Revenue
a refund of VAT input taxes it paid from Declarations and the audit report of the
January 1, 2002 to December 31, 2002 Court-commissioned Independent Certified
in the total amount of Two Hundred Public Accountant (CPA) are insufficient to
Forty Nine Million Three Hundred Ninety prove that the importations and domestic
Seven Thousand Six Hundred Twenty and purchases were classified as capital goods
18/100 Pesos (P249,397,620.18). and properties entered as part of the
“Property, Plant and Equipment” account of
Simply put, the issue is: whether or not the petitioner. The dispositive part of the said
petitioner is entitled to refund or tax credit in Decision reads:
the amount of P249,397,620.18 representing
its unutilized input VAT paid on importation WHEREFORE, the instant Petition for Review
and purchases of capital and other taxable is DENIED for lack of merit.17
goods and services from January 1 to
December 31, 2002. Not satisfied with the foregoing Decision
dated 23 March 2006, petitioner filed a
After a hearing on the merits, the CTA Second Motion for Reconsideration which was denied
Division rendered a Decision16 dated 23 March by the CTA Second Division in a Resolution
2006 denying petitioner’s claim for tax refund dated 4 January 2007.18
or credit. The CTA noted that petitioner based
its claim on creditable input VAT paid, which Petitioner filed an appeal with the CTA En
is attributable to (1) zero-rated or effectively Banc, docketed as CTA EB No. 248. The CTA
zero-rated sale, as provided under Section En Banc promulgated its Decision19 on 20
112(A) of the NIRC, and (2) purchases of September 2007 denying petitioner’s appeal.
capital goods, in accordance with Section The CTA En Banc reiterated the ruling of the
112(B) of the NIRC. The court ruled that in Division that petitioner’s claim based on
order for petitioner to be entitled to the Section 112(A) of the NIRC should be denied
refund or issuance of a tax credit certificate since it did not present any records of any zero-
on the basis of Section 112(A) of the NIRC, rated or effectively zero-rated transactions.
it must establish that it had incurred zero- It clarified that since petitioner failed to
rated sales or effectively zero-rated sales for prove that any sale of its electricity had
the taxable year 2002. Since records show transpired, petitioner may base its claim only
that petitioner did not make any zero-rated on Section 112(B) of the NIRC, the provision
or effectively-zero rated sales for the taxable governing the purchase of capital goods. The
year 2002, the CTA reasoned that petitioner’s court noted that the report of the Court-
claim must be denied. Parenthetically, the commissioned auditing firm, Punongbayan &
court declared that the claim for tax refund Araullo, dealt specifically with the unutilized
or credit based on Section 112(B) of the NIRC input taxes paid or incurred by petitioner on
requires petitioner to prove that it paid input its local and foreign purchases of goods and
VAT on capital goods purchased, based on the services attributable to its zero-rated sales,
definition of capital goods provided under and not to purchases of capital goods. It
Section 4.112-1(b) of Revenue Regulations decided that petitioner failed to prove that
No. 7-95—i.e., goods or properties which the purchases evidenced by the invoices and
have an estimated useful life of greater than receipts, which petitioner presented, were
one year, are treated as depreciable assets classified as capital goods which formed
under Section 34(F) of the NIRC, and are used part of its “Property, Plant and Equipment,”
especially since petitioner failed to present its to Section 112(A) of the NIRC or for input
books of account. The dispositive part of the taxes paid on capital goods as provided under
said Decision reads: Section 112(B) of the NIRC.
WHEREFORE, premises considered, the To resolve the issue, this Court must re-
instant petition is hereby DISMISSED. examine the facts and the evidence offered
Accordingly, the assailed Decision and by the parties. It is an accepted doctrine that
Resolution are hereby AFFIRMED.20 this Court is not a trier of facts. It is not its
function to review, examine and evaluate or
The CTA En Banc denied petitioner’s Motion weigh the probative value of the evidence
for Reconsideration in a Resolution dated 22 presented. However, this rule does not
October 2007.21 apply where the judgment is premised on
a misapprehension of facts, or when the
Hence, the present Petition for Review where appellate court failed to notice certain
the petitioner raises the following errors relevant facts which if considered would
allegedly committed by the CTA En banc: justify a different conclusion.23
I After reviewing the records, this Court finds

that petitioner’s claim for refund or credit
THE COURT OF TAX APPEALS EN BANC is justified under Section 112(A) of the NIRC
COMMITTED SERIOUS ERROR AND ACTED which states that:
WITH GRAVE ABUSE OF DISCRETION
TANTAMOUNT TO LACK OR EXCESS OF SEC. 112. Refunds or Tax Credits of Input
JURISDICTION IN FAILING OR REFUSING TO Tax.—
APPRECIATE THE OVERWHELMING AND
UNCONTROVERTED EVIDENCE SUBMITTED (A) Zero-rated or Effectively Zero-
BY THE PETITIONER, THUS DEPRIVING rated Sales—Any VAT-registered
PETITIONER OF ITS PROPERTY WITHOUT DUE person, whose sales are zero-rated
PROCESS; AND or effectively zero-rated may, within
two (2) years after the close of the
II taxable quarter when the sales
were made, apply for the issuance
THE COURT OF TAX APPEALS COMMITTED of a tax credit certificate or refund
SERIOUS ERROR AND ACTED WITH GRAVE of creditable input tax due or paid
ABUSE OF DISCRETION AMOUNTING TO attributable to such sales, except
LACK OR EXCESS OF JURISDICTION IN RULING transitional input tax, to the extent
THAT THE ABSENCE OF ZERO-RATED SALES BY that such input tax has not been
PETITIONER DURING THE YEAR COVERED BY applied against output tax: Provided,
THE CLAIM FOR REFUND DOES NOT ENTITLE however, That in the case of zero-
PETITIONER TO A REFUND OF ITS EXCESS VAT rated sales under Section 106(A)
INPUT TAXES ATTRIBUTABLE TO ZERO-RATED (2)(a)(1), (2) and (B) and Section
SALES, CONTRARY TO PROVISIONS OF LAW.22 108(B)(1) and (2), the acceptable
foreign currency exchange proceeds
The present Petition is meritorious. thereof had been duly accounted
for in accordance with the rules and
The main issue in this case is whether or regulations of the Bangko Sentral
not petitioner may claim a tax refund or ng Pilipinas (BSP): Provided, further,
credit in the amount of P249,397,620.18 That where the taxpayer is engaged
for creditable input tax attributable to zero- in zero-rated or effectively zero-rated
rated or effectively zero-rated sales pursuant sale and also in taxable or exempt sale
of goods or properties or services, the Court-commissioned Independent CPA.
and the amount of creditable input Significantly, Aguilar noted in his audit report
tax due or paid cannot be directly (Exhibit “J-2”) that of the P249,397,620.18
and entirely attributed to any one of claimed by petitioner, he identified items
the transactions, it shall be allocated with incomplete documentation and errors
proportionately on the basis of the in computation with a total amount of
volume of sales. P3,266,009.78. Based on these findings, the
remaining input VAT of P246,131,610.40 was
To claim refund or tax credit under Section properly documented and recorded in the
112(A), petitioner must comply with the books. The said report reads:
following criteria: (1) the taxpayer is VAT
registered; (2) the taxpayer is engaged in zero- In performing the procedures referred under
rated or effectively zero-rated sales; (3) the the Procedures Performed section of this
input taxes are due or paid; (4) the input taxes report, no matters came to our attention that
are not transitional input taxes; (5) the input cause us to believe that the amount of input
taxes have not been applied against output VAT applied for as tax credit certificate/refund
taxes during and in the succeeding quarters; of P249,397,620.18 for the period January 1,
(6) the input taxes claimed are attributable 2002 to December 31, 2002 should be adjusted
to zero-rated or effectively zero-rated sales; except for input VAT claimed with incomplete
(7) for zero-rated sales under Section 106(A) documentation, those with various and other
(2)(1) and (2); 106(B); and 108(B)(1) and (2), exceptions on the supporting documents and
the acceptable foreign currency exchange those with errors in computation totaling
proceeds have been duly accounted for in P3,266,009.78, as discussed in the Findings
accordance with BSP rules and regulations; (8) and Results of the Agreed-Upon Audit
where there are both zero-rated or effectively Procedures Performed sections of this report.
zero-rated sales and taxable or exempt sales, We have also ascertained that the input VAT
and the input taxes cannot be directly and claimed are properly recorded in the books
entirely attributable to any of these sales, the and, except as specifically identified in the
input taxes shall be proportionately allocated Findings and Results of the Agreed-Upon
on the basis of sales volume; and (9) the claim Audit Procedures Performed sections of this
is filed within two years after the close of the report, are properly supported by original
taxable quarter when such sales were made.24 and appropriate suppliers’ VAT invoices and/
or official receipts.25
Based on the evidence presented, petitioner
complied with the abovementioned Fourthly, the input taxes claimed, which
requirements. Firstly, petitioner had consisted of local purchases and importations
adequately proved that it is a VAT registered made in 2002, are not transitional input taxes,
taxpayer when it presented Certificate of which Section 111 of the NIRC defines as input
Registration No. OCN-98-006-007394, which taxes allowed on the beginning inventory of
it attached to its Petition for Review dated 29 goods, materials and supplies.26 Fifthly, the
March 2004 filed before the CTA in Division. audit report of Aguilar affirms that the input
Secondly, it is unquestioned that petitioner VAT being claimed for tax refund or credit is
is engaged in providing electricity for NPC, net of the input VAT that was already offset
an activity which is subject to zero rate, against output VAT amounting to P26,247.27
under Section 108(B)(3) of the NIRC. Thirdly, for the first quarter of 2002 and P34,996.36
petitioner offered as evidence suppliers’ VAT for the fourth quarter of 2002,27 as reflected
invoices or official receipts, as well as Import in the Quarterly VAT Returns.28
Entries and Internal Revenue Declarations
(Exhibits “J-4-A1” to “J-4-L265”), which were The main dispute in this case is whether or
examined in the audit conducted by Aguilar, not petitioner’s claim complied with the
sixth requirement—the existence of zero- the NIRC, which deals with the imposition
rated or effectively zero-rated sales, to which of the VAT, does not limit the term “sale” to
creditable input taxes may be attributed. The commercial sales, rather it extends the term
CTA in Division and en banc denied petitioner’s to transactions that are “deemed” sale, which
claim solely on this ground. The tax courts are thus enumerated:
based this conclusion on the audited report,
marked as Exhibit “J-2,” stating that petitioner SEC 106. Value-Added Tax on Sale of Goods
made no sale of electricity to NPC in 2002.29 or Properties.
Moreover, the affidavit of Echevarria (Exhibit xxxx
“L”), petitioner’s Vice President and Director
for Finance, contained an admission that no (B) Transactions Deemed Sale.—The
commercial sale of electricity had been made following transactions shall be deemed
in favor of NPC in 2002 since the project was sale:
still under construction at that time.30
(1) Transfer, use or consumption not
However, upon closer examination of the in the course of business of goods
records, it appears that on 2002, petitioner or properties originally intended
carried out a “sale” of electricity to NPC. for sale or for use in the course of
The fourth quarter return for the year 2002, business;
which petitioner filed, reported a zero-rated
sale in the amount of P42,500,000.00 In (2) Distribution or transfer to:
the Affidavit of Echevarria dated 9 February
2005 (Exhibit “L”), which was uncontroverted (a) Shareholders or investors as
by respondent, the affiant stated that share in the profits of the VAT-
although no commercial sale was made in registered persons; or
2002, petitioner produced and transferred
electricity to NPC during the testing period in (b) Creditors in payment of debt;
exchange for the amount of P42,500,000.00,
to wit:32 (3) Consignment of goods if actual sale
is not made within sixty (60) days
A: San Roque Power Corporation following the date such goods were
has had no sale yet during 2002. The consigned; and
P42,500,000.00 which was paid to us
by Napocor was something similar to (4) Retirement from or cessation of
a more cost recovery scheme. The business, with respect to inventories
pre-agreed amount would be about of taxable goods existing as of
equal to our costs for producing the such retirement or cessation. (Our
electricity during the testing period emphasis.)
and we just reflected this in our 4th
quarter return as a zero-rated sale. x After carefully examining this provision, this
x x. Court finds it an equitable construction of
the law that when the term “sale” is made to
The Court is not unmindful of the fact that the include certain transactions for the purpose
transaction described hereinabove was not a of imposing a tax, these same transactions
commercial sale. In granting the tax benefit should be included in the term “sale” when
to VAT-registered zero-rated or effectively considering the availability of an exemption or
zero-rated taxpayers, Section 112(A) of the tax benefit from the same revenue measures.
NIRC does not limit the definition of “sale” to It is undisputed that during the fourth quarter
commercial transactions in the normal course of 2002, petitioner transferred to NPC all the
of business. Conspicuously, Section 106(B) of electricity that was produced during the trial
period. The fact that it was not transferred taken place, instead of at the close of the
through a commercial sale or in the normal said quarter does not make petitioner any
course of business does not deflect from the less entitled to its claim. Given the special
fact that such transaction is deemed as a sale circumstances of this case, wherein petitioner
under the law. was incorporated for the sole purpose of
constructing or operating a power plant that
The seventh requirement regarding foreign will transfer all the electricity it generates
currency exchange proceeds is inapplicable to NPC, there is no danger that petitioner
where petitioner’s zero-rated sale of electricity would try to fraudulently claim input tax
to NPC did not involve foreign exchange and paid on purchases that will be attributed to
consisted only of a single transaction wherein sale transactions that are not zero-rated.
NPC paid petitioner P42,500,000.00 in Substantial justice, equity and fair play are on
exchange for the electricity transferred to it by the side of the petitioner. Technicalities and
petitioner. Similarly, the eighth requirement is legalisms, however, exalted, should not be
inapplicable to this case, where the only sale misused by the government to keep money
transaction consisted of an effectively zero- not belonging to it, thereby enriching itself at
rated sale and there are no exempt or taxable the expense of its law abiding citizens.
sales that transpired, which will require the
proportionate allocation of the creditable Substantial justice, equity and fair play are
input tax paid. on the side of petitioner. Technicalities and
legalisms, however exalted, should not be
The last requirement determines that the misused by the government to keep money
claim should be filed within two years after the not belonging to it, thereby enriching itself at
close of the taxable quarter when such sales the expense of its law-abiding citizens. Under
were made. The sale of electricity to NPC was the principle of solutio indebiti provided in Art.
reported at the fourth quarter of 2002, which 2154, Civil Code, the BIR received something
closed on 31 December 2002. Petitioner had “when there [was] no right to demand it,” and
until 30 December 2004 to file its claim for thus, it has the obligation to return it. Heavily
refund or credit. For the period January to militating against respondent Commissioner
March 2002, petitioner filed an amended is the ancient principle that no one, not even
request for refund or tax credit on 30 May the State, shall enrich oneself at the expense
2003; for the period July 2002 to September of another. Indeed, simple justice requires
2002, on 27 February 2003; and for the period the speedy refund of the wrongly held taxes.
October 2002 to December 2002, on 31 July
2003.33 In these three quarters, petitioners It bears emphasis that effective zero-rating
seasonably filed its requests for refund and is not intended as a benefit to the person
tax credit. However, for the period April 2002 legally liable to pay the tax, such as petitioner,
to May 2002, the claim was filed prematurely but to relieve certain exempt entities, such
on 25 October 2002, before the last quarter as the NPC, from the burden of indirect
had closed on 31 December 2002. tax so as to encourage the development
of particular industries. Before, as well as
Despite this lapse in procedure, this Court after, the adoption of the VAT, certain special
notes that petitioner was able to positively laws were enacted for the benefit of various
show that it was able to accumulate excess entities and international agreements were
input taxes on various importations and local entered into by the Philippines with foreign
purchases in the amount of P246,131,610.40, governments and institutions exempting sale
which were attributable to a transfer of of goods or supply of services from indirect
electricity in favor of NPC. The fact that it had taxes at the level of their suppliers. Effective
filed its claim for refund or credit during the zero-rating was intended to relieve the
quarter when the transfer of electricity had exempt entity from being burdened with the
indirect tax which is or which will be shifted to (d) From all taxes, duties, fees, imposts, and
it had there been no exemption. In this case, all other charges imposed by the Republic
petitioner is being exempted from paying VAT of the Philippines, its provinces, cities,
on its purchases to relieve NPC of the burden municipalities and other government
of additional costs that petitioner may shift to agencies and instrumentalities, on
NPC by adding to the cost of the electricity all petroleum products used by
sold to the latter. the corporation in the generation,
transmission, utilization, and sale of
Section 13 of Republic Act No. 6395, electric power.
otherwise known as the NPC Charter, further
clarifies that it is the lawmakers’ intention To limit the exemption granted to the NPC
that NPC be made completely exempt from to direct taxes, notwithstanding the general
all taxes, both direct and indirect: and broad language of the statute will be
to thwart the legislative intention in giving
Sec. 13. Non-profit Character of the exemption from all forms of taxes and
Corporation; Exemption from all Taxes, impositions, without distinguishing between
Duties, Fees, Imposts and Other Charges those that are direct and those that are not.37
by Government and Governmental
Instrumentalities. - The corporation shall be Congress granted NPC a comprehensive tax
non-profit and shall devote all its returns exemption because of the significant public
from its capital investment, as well as interest involved. This is enunciated in Section
excess revenues from its operation, for 1 of Republic Act No. 6395:
expansion. To enable the corporation to
pay its indebtedness and obligations and in Section 1. Declaration of Policy. Congress
furtherance and effective implementation of hereby declares that (1) the comprehensive
the policy enunciated in Section 1 of this Act, development, utilization and conservation of
the corporation is hereby declared exempt: Philippine water resources for all beneficial
uses, including power generation, and (2) the
(a) From the payment of all taxes, duties, total electrification of the Philippines through
fees, imposts, charges, costs and service the development of power from all sources
fees in any court or administrative to meet the needs of industrial development
proceedings in which it may be a party, and dispersal and the needs of rural
restrictions and duties to the Republic electrification are primary objectives of the
of the Philippines, its provinces, cities, nation which shall be pursued coordinately
municipalities, and other government and supported by all instrumentalities
agencies and instrumentalities; and agencies of government, including its
financial institutions.
(b) From all income taxes, franchise taxes,
and realty taxes to be paid to the National The ability of the NPC to provide sufficient
Government, its provinces, cities, and affordable electricity throughout the
municipalities and other government country greatly affects our industrial and
agencies and instrumentalities; rural development. Erroneously and unjustly
depriving industries that generate electrical
(c) From all import duties, compensating power of tax benefits that the law clearly
taxes and advanced sales tax and grants will have an immediate effect on
wharfage fees on import of foreign consumers of electricity and long term effects
goods, required for its operations and on our economy.
projects; and

In the same breath, we cannot lose sight of the the costs of borrowing becomes higher
fact that it is the declared policy of the State, and the harder it will be to attract foreign
expressed in Section 2 of Republic Act No. investors. The country’s earnest efforts to
9136, otherwise known as the EPIRA Law, “to move forward will all be put to naught.
ensure and accelerate the total electrification
of the country;” “to enhance the inflow of Having decided that petitioner is entitled
private capital and broaden the ownership to claim refund or tax credit under Section
base of the power generation, transmission 112(A) of the NIRC or on the basis of
and distribution sectors;” and “to promote effectively zero-rated sales in the amount of
the utilization of indigenous and new and P246,131,610.40, there is no more need to
renewable energy resources in power establish its right to make the same claim
generation in order to reduce dependence under Section 112(B) of the NIRC or on the
on imported energy.” Further, Section 6 basis of purchase of capital goods.
provides that “pursuant to the objective of
lowering electricity rates to end-users, sales Finally, respondent contends that according
of generated power by generation companies to well-established doctrine, a tax refund,
shall be value-added tax zero-rated. which is in the nature of a tax exemption,
should be construed strictissimi juris against
Section 75 of said law succinctly declares that the taxpayer.38 However, when the claim for
“this Act shall, unless the context indicates refund has clear legal basis and is sufficiently
otherwise, be construed in favor of the supported by evidence, as in the present case,
establishment, promotion, preservation of then the Court shall not hesitate to grant the
competition and power empowerment so same.
that the widest participation of the people,
whether directly or indirectly is ensured.” WHEREFORE, the instant Petition for Review
is GRANTED. The Decision of the Court of
The objectives as set forth in the EPIRA Law Tax Appeals En Banc dated 20 September
can only be achieved if government were to 2007 in CTA EB Case No. 248, affirming
allow petitioner and others similarly situated the Decision dated 23 March 2006 of the
to obtain the input tax credits available under CTA Second Division in CTA Case No. 6916,
the law. Denying petitioner such credits is REVERSED. Respondent Commissioner
would go against the declared policies of the of Internal Revenue is ordered to refund,
EPIRA Law. or in the alternative, to issue a tax credit
certificate to petitioner San Roque Power
The legislative grant of tax relief (whether in Corporation in the amount of Two Hundred
the EPIRA Law or the Tax Code) constitutes Forty-Six Million One Hundred Thirty-One
a sovereign commitment of Government to Thousand Six Hundred Ten Pesos and 40/100
taxpayers that the latter can avail themselves (P246,131,610.40), representing unutilized
of certain tax reliefs and incentives in the input VAT for the period 1 January 2002 to 31
course of their business activities here. Such December 2002. No costs.
a commitment is particularly vital to foreign
investors who have been enticed to invest SO ORDERED.
heavily in our country’s infrastructure, and
who have done so on the firm assurance that MINITA V. CHICO-NAZARIO
certain tax reliefs and incentives can be availed Associate Justice
of in order to enable them to achieve their
projected returns on these very long-term WE CONCUR:
and heavily funded investments. While the
government’s ability to keep its commitment RENATO C. CORONA
is put in doubt, credit rating turns to worse; Associate Justice
RENATO C. CORONA
Associate Justice
PRESBITERO J. VELASCO, JR. Chairperson, Third Division
Associate Justice
CERTIFICATION
ANTONIO EDUARDO B. NACHURA
Associate Justice Pursuant to Section 13, Article VIII of the
Constitution, and the Division Chairperson’s
DIOSDADO M. PERALTA attestation, it is hereby certified that the
Associate Justice conclusions in the above Decision were
reached in consultation before the case was
ATTESTATION assigned to the writer of the opinion of the
Court’s Division.
I attest that the conclusions in the above
Decision were reached in consultation before REYNATO S. PUNO
the case was assigned to the writer of the Chief Justice
opinion of the Court’s Division.

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 172960 March 26, 2010
MACTAN ELECTRIC COMPANY, INC., SEC. 43. Functions of the ERC – The ERC shall
Petitioner, promote competition, encourage market
development, ensure customer choice and
versus discourage/penalize abuse of market power
NATIONAL POWER CORPORATION, in the restructured electricity industry.
MACTAN CEBU INTERNATIONAL AIRPORT Towards this end, it shall be responsible for
AUTHORITY and NATIONAL TRANSMISSION the following key functions in the restructured
CORPORATION, industry:
Respondents.
xxx xxx xxx
x--------------------------------------------x (v) The ERC shall have the original

and exclusive jurisdiction over all
DECISION cases contesting rates, fees, fines
and penalties imposed by the ERC in
CORONA, J.: the exercise of the abovementioned
powers, functions and responsibilities
Mactan Electric Company, Inc. (MECO) and over all cases involving disputes
posed the purely legal question of whether between and among participants
paragraph (v), Section 43 of RA 9136: or players in the energy sector. All
notices of hearings to be conducted reduction and the decrease shall be
by the ERC for the purpose of fixing deemed effective from such date of
rates or fees shall be published transfer. Provided further that [MECO]
at least twice for two successive and [NPC] shall ensure that the transfer
weeks in two (2) newspapers of shall not disadvantage any assignee(s)
nationwide circulation. (emphasis of [NPC].
supplied) clothed the Energy
Regulatory Commission (ERC) with 4.7.2 Expected reduction in the Contracted
jurisdiction to resolve disputes Energy by the [MECO] with the [NPC]
involving MECO as an energy caused or initiated by the industrial
distribution company with a customers of the [MECO] as listed
public franchise, National Power in Annex 1a shall be excused by the
Corporation (NPC) as an energy SUPPLIER. To be able to avail of this
generation company, National exemption, [MECO] must inform [NPC]
Transmission Corporation (TRANSCO) in writing sixty (60) days prior to the
as a transmission and sub- effectivity of the reduction in the
transmission company and Mactan Contracted Energy. It is understood
Cebu International Airport Authority that the expected reduction is neither
(MCIAA) as an energy end-user. due to self-generation nor transfer to
another power SUPPLIER.
The facts are not disputed.
MCIAA was listed as an industrial costumer
MECO holds a franchise to operate an of MECO in Annex 1a of the supply contract.
electric light and power service in the MCIAA and MECO had a contract for electric
areas comprising Lapu-Lapu City and the power service connection for a period of
Municipality of Cordova. It has a contract one year, subject to automatic renewal,
with NPC for the supply of “contract energy unless either party desired to terminate the
from September 26, 2005 to September 25, contract, in which case said party must serve
2015. It is charged a minimum rate based a 30-day written notice upon the other for
on the contract energy per billing period, the termination or amendment to take effect.
regardless of whether it fails to consume the Their contract began on September 19, 1995
contract energy allocated to it. However, it and was renewed every year thereafter. On
may apply for reduction of its contract energy April 24, 2006, MECO received notice from
upon payment of a buy-out fee except under MCIAA that it was terminating their contract
the following circumstances: effective May 24, 2006.
4.7.1 The reduction is caused by the transfer MECO filed with the Regional Trial Court
by a consumer of its power and energy (RTC), Branch 54, Lapu-Lapu City, a complaint
source from [MECO] to [NPC] or, to for damages with prayer for temporary
another customer of [NPC] located restraining order and/or writ of preliminary
within the same grid prompting the injunction against MCIAA, NPC and TRANSCO.
other customer to correspondingly The material allegations in the complaint are
increase its electric supply requirement reproduced below, for they are determinative
with [NPC], notwithstanding that of the question of law raised herein:
[MECO] may have itself imposed
penalties or buy-out provisions to 2.19 Although the MCIAA letter of termination
such transferring consumer. [MECO] does not indicate from whom MCIAA will
shall have sixty (60) days from transfer get its electric power supply after May
within which to request the appropriate 24, 2006, there are strong indications as

shown by the following circumstances intended sale of electric energy by NPC
recently validated, and thus reasonable to MCIAA [not] having [the approval of]
grounds to believe that NPC will directly ERC and DOE, plaintiff has a clear and
supply electric power to MCIAA and the unmistakable right to an injunctive relief
latter will directly source and buy such to enjoin NPC from committing such
electric power from the NPC without unauthorized act.
passing through the distribution system
of MECO SECOND ALTERNATIVE CAUSE OF
ACTION TO THE FIRST CAUSE OF ACTION
xxx xxx xxx
3.3 Granting without conceding that NPC has
All these were done notwithstanding the authority to directly sell electric energy
validity, enforceablity and existence of the to end-users MECO has a clear, positive
“MECO-MCIAA Connection Contract” on and unmistakable property right as a
one hand, and the validity, enforceability franchise holder, guaranteed by the due
and existence of the “NPC-MECO Supply process protection of the constitution, to
Contract” on the one hand. be heard first before the NPC can directly
supply electric energy to any end user
2.20 It must be stressed that with the advent within MECO’s franchise area.
of the EPIRA of 2001, NPC is now without
authority to sell electric energy directly 3.4 MECO likewise enjoys the priority in right
to end-users including MCIAA. to distribute electricity to any existing
or prospective enterprises within its
xxx xxx xxx franchise area to the exclusion of any
person or entity including the NPC.
CAUSES OF ACTION FIRST CAUSE OF ACTION
AGAINST DEFENDANT NPC 3.5 MECO furthermore enjoys the
constitutional right to free enterprise as
(For Injunctive Relief) well as the protective mantle of P.D. 2029
from competition with government-
xxx xxx xxx owned or controlled corporation
including the NPC in various economic
3.1 NPC is now without authority in law to
activities like the distribution of services
directly sell electric energy to end users
in which MECO is primarily engaged.
including MCIAA. Such being the case,
MECO has a clear and unmistakable right
3.6 The acts of NPC in directly supplying
to secure an injunctive relief against NPC
electric energy to MCIAA grossly violate
to enjoin the latter from committing an
the foregoing constitutional rights of
illegal act.
MECO and seriously impair the franchise
of MECO to exclusively operate a
FIRST ALTERNATIVE
distribution system in the whole Island
CAUSE OF ACTION TO THE FIRST CAUSE
of Mactan and to directly convey electric
OFACTION
power to end-users in that area of
coverage.
3.2 Granting without conceding that NPC has
authority to directly sell electric energy 3.7 The acts complained of against NPC will
to end-users, NPC cannot lawfully do so result in MECO breaching the NPC-MECO
to MCIAA without prior approval from Supply Contract and be penalized by NPC
the appropriate government regulatory under the said contract MECO will not
agencies such as the ERC and DOE. The be able to fully consume or take out the
level of electrical energy contracted for a to the prejudice and damage of MECO,
particular period. aware as it was that such termination
would expose MECO to liability under
3.8 The acts complained of against NPC the latter’s “NPC-MECO Supply Contract”
also constitute an unlawful contractual which is valid until September 25, 2015.
interference by NPC with the contractual
obligation of MCIAA to MECO as xxx xxx xxx
evidenced by the existing MECO-MCIAA
Connection Contract which is valid until CAUSE OF ACTION AGAINST
September 19, 2006. DEFENDANT TRANSCO
(For Injunctive Relief)
xxx xxx xxx
xxx xxx xxx
3.11As a matter of law, MECO is therefore
entitled to a writ of prohibitory injunction 5.1 In the commission or performance of
against NPC, enjoining the latter from the acts complained of by NPC and
directly supplying electric energy to MCIAA, NPC and MCIAA will unavoidably
MCIAA. and consequently use the electrical
transmission and sub-transmission
In the event, however, that NPC is now facilities of TRANSCO and all other assets
directly supplying electric energy to MCIAA, related to transmission operations.
MECO is as a matter of law entitled to a writ of
mandatory injunction against NPC, directing 5.2 In order not to allow the commission by
the latter to discontinue directly supplying NPC and MCIAA of illegal acts, TRANSCO
electric energy to MCIAA. should be enjoined from allowing the
use of its electrical transmission and sub-
FIRST CAUSE OF ACTION AGAINST transmission facilities
DEFENDANT MCIAA
COMMON CAUSES OF ACTION
(For Specific Performance & Injunctive Relief) AGAINST DEFENDANTS NPC
and MCIAA (For Damages)
xxx xxx xxx
xxx xxx xxx
4.1 MECO has a clear and unmistakable
right to demand from MCIAA to honor 6.2 These acts likewise constitute an abuse
and faithfully comply with the terms of right under Articles 19 and 20 of the
and conditions of the MECO-MCIAA Civil Code which requires every person
Connection Contract which is valid, to act with justice, give everyone his
enforceable and existing until September due and observe honesty and good faith
19, 2006. in the exercise of his rights and in the
performance of his duties. Furthermore,
xxx xxx xxx the commission of the acts complained of
will willfully cause loss or injury to MECO
4.3 Even assuming without conceding that in a manner that is contrary to morals,
MCIAA is given the right to terminate good customs or public policy in violation
the said contract, the circumstances of Article 21 of the Civil Code.
would show that such exercise of right
by MCIAA was arbitrary amounting to 6.3 More importantly, the acts complained
bad faith, and grossly abused by MCIAA of against NPC constitute an inducement

by a third party to MCIAA to violate xxx xxx xxx
its existing contract with MECO which
contract is valid until September 19, While it is true that the plaintiff and defendants
2006 amounting to contract interference MCIAA, NPC and NTC had forged contractual
which is prohibited by Article 1311 of the relations with each other involving or
Civil Code. affecting electricity and that disputes arising
therefrom may involve provisions in the Civil
The RTC issued a 72-hour temporary Code of the Philippines and may even involve
restraining order and later, a status quo order contractual interference, yet the indubitable
effective until June 11, 2006. fact remains that the controversy in its
entirety necessarily involves, affects and/
MCIAA, NPC and TRANSCO each filed a or pertains to the generation, transmission,
motion to dismiss on the grounds of lack distribution, and consumption of electricity
of jurisdiction and improper venue. They – matters that are within the jurisdiction and
argued that, under Section 43 of RA 9136, ERC competence of the ERC to adjudicate as an
had the primary administrative jurisdiction independent, quasi-judicial regulatory body.
over the dispute as it involved players in the Notably, as admitted by the plaintiff, technical
energy sector. MCIAA further pointed out a words and phrases will be utilized in the
stipulation in its contract with MECO that in course of the proceedings; this is precisely
case of suit, the same should be filed in Cebu the reason why the ERC has been tasked
City, not Lapu-Lapu City. to hear and adjudicate disputes involving
participants in the energy sector, it has the
NPC and MCIAA filed oppositions to the technical expertise and experience to deal
application of MECO for preliminary injunction. with technical matters.
They disclosed that, in compliance with the
requirements set forth in Cagayan Electric The doctrine of primary jurisdiction also
Power and Light Company vs. National Power comes into play in that courts will not resolve
Corporation (i.e., that an electric franchisee a controversy involving a question which is
must be given the opportunity to be heard within the jurisdiction of an administrative
before NPC may provide direct service to tribunal, especially where the question
enterprises within the franchise area), NPC demands the exercise of sound administrative
and MCIAA disclosed to MECO on February discretion requiring the special knowledge
3, 2001, August 20, 2001 and October 2, 2001 and experience of the said tribunal in
their planned direct sale of bulk power and determining technical and intricate matters
invited it to make a better offer, but MECO did of fact.
not heed the invitation.
xxx
The RTC dismissed the case on the following
ground: MECO filed the instant petition for this Court
to declare that the RTC and not ERC had
After a judicious review of the records and jurisdiction over its dispute with NPC, MCIAA
on the basis of the hearings conducted on and TRANSCO because the dispute was
June 05 and 08, 2006 the court is convinced purely civil in nature. It arose from a mere
and hereby concludes that the ERC, the violation of its (MECO’s) rights under the
government regulatory agency that has Constitution and the Civil Code, and required
original and exclusive jurisdiction to try for the resolution thereof an interpretation
disputes between and among players in the and application of said laws. No technical
energy sector. This is clear under Sec. 43 (u) matter was involved and no expertise of ERC
of Republic Act No. 9136, was needed.

MECO further argued that not all the parties exercise of its powers, functions and
to the dispute were players in the energy responsibilities under Section 43 (a)
sector. MCIAA was neither a generation through (u); and
company, nor a transmission utility, nor a
supplier of energy, nor a distributor thereof, (2) all cases involving disputes between
but a mere end-user. Thus, the dispute was and among participants or players in the
not “between and among participants or energy sector.
players in the energy sector” which would
have brought it within the ambit of Section Section 4 (n), Rule 3 of the Rules and Regulations
43 (v) of RA 9136. to Implement RA 9136 (implementing rules)
provides an administrative interpretation of
In their respective memoranda, NPC, MCIAA the scope of Section 43 (v) of RA 9136, to wit:
and TRANSCO maintain that the case arose
from a dispute among energy players over SEC. 4. Responsibilities of the ERC. –
electric power connection and distribution;
hence, it fell within the primary administrative xx xx xx
jurisdiction of ERC under Section 43 (v) of RA
9136. (n) The ERC shall have the original and
exclusive jurisdiction over all cases contesting
On July 11, 2007, MCIAA filed a manifestation rates, fees, fines and penalties imposed in
with motion to dismiss, informing the Court the exercise of its powers, functions and
that, pursuant to RA 6395, it filed with ERC responsibilities and over all cases involving
an application for direct electric connection disputes between and among participants
with NPC and TRANSCO under Section 3 or players in the energy sector relating
(g) of said law. MCIAA urges the Court to to the foregoing powers, functions and
dismiss the instant petition for having been responsibilities. (emphasis supplied)
rendered moot and academic by the filing of
its application with ERC. Disputes between and among participants
or players in the energy sector which may
The question of law before the Court is: was possibly be related to the powers, functions
it the RTC or the ERC which had jurisdiction and responsibilities of ERC are those arising
over the dispute involving MECO, on one from cross-ownership, abuse of market
hand, and MCIAA, NPC and TRANSCO, on the power, cartelization and anti-competitive or
other? The issue is not hypothetical even as discriminatory behavior by any electric power
MCIAA has filed a petition with ERC for direct industry participant as defined and penalized
electrical connection with NPC and TRANSCO. under Section 45 of RA 9136 and Sections 3,
Jurisdiction is not conferred on ERC by the 4, 5 and 8, Rule 11 of the implementing rules.
mere filing of a petition with it. Its jurisdiction It is ERC which is authorized to monitor and
is bestowed by law, specifically RA 9136. penalize these prohibited acts and to stop
and redress the same through such remedial
There is, however, nothing in either RA 9136 measures as the issuance of injunction.
or its implementing rules which grants ERC
jurisdiction over the dispute. The subject matter of the dispute between
the parties is neither cross-ownership, nor
Section 43 (v) confers on ERC original and abuse of market power, nor cartelization,
exclusive jurisdiction over two kinds of cases: nor anti-competitive or discriminatory
behavior. Based on the allegations of MECO
(1) all cases contesting rates, fees, fines in its complaint and the essence of the relief
and penalties imposed by ERC in the it sought, the subject matter of its dispute

with MCIAA, NPC and TRANSCO involved the 9, 1992 and which took effect fifteen days
distribution of energy resource, specifically after its complete publication in at least two
the direct supply of electricity by NPC (2) national newspapers of general circulation,
through TRANSCO to MCIAA, without passing specifically provides as follows:
through the distribution system of MECO as
the franchise holder in the area. Therefore, “SEC. 18. Rationalization or Transfer of
their dispute was not within the authority of Functions of Attached or Related Agencies. –
ERC to resolve. The non-price regulatory jurisdiction, powers,
and functions of the Energy Regulatory Board
But neither did the RTC have jurisdiction over as provided for in Section 3 of Executive
the dispute. That power belonged to the Order No. 172 are hereby transferred to the
Department of Energy (DOE). Department.
In Energy Regulatory Board and Iligan In Batelec II Electric Cooperative Inc.

Light & Power, Inc. v. Court of Appeals, et v. Energy Industry Administration
al., we declared that jurisdiction over the Bureau (EIAB), et al., the Court
regulation of the marketing and distribution further reiterated that the DOE
of energy resources is vested in the DOE. In had regulatory authority over
the consolidated cases National Power Corp. matters involving the marketing and
v. Court of Appeals and Cagayan Electric distribution of energy resources.
Power and Light Co. and Phividec Industrial
Authority v. Court of Appeals and Cagayan DOE has retained such regulatory authority
Electric Power and Light Co., the Court traced even with the enactment of RA 9136. Section
the history of this regulatory function of DOE: 80 thereof provides that “[t]he applicable
provisions of x x x Republic Act 7638,
The ERB, which used to be the Board of otherwise known as the ‘Department of
Energy, is tasked with the following powers Energy Act of 1992’ x x x shall continue
and functions by Executive Order No. 172 to have full force and effect except in so far
which took effect immediately after its as inconsistent” with RA 9136. Corollary to
issuance on May 8, 1987: Section 80, Section 37 assigned to DOE certain
powers and functions in the supervision of
“SEC. 3. Jurisdiction, Powers and Functions the restructuring of the electricity industry,
of the Board – When warranted and but these are “[i]n addition to its existing
only when public necessity requires, powers and functions.” Among the existing
the Board may regulate the business of powers and functions of DOE is the regulation
importing, exporting, re-exporting, shipping, of the marketing and distribution of energy
transporting, processing, refining, marketing resource as provided in Section 18 of RA
and distributing energy resources. 7638, amending Section 3 of EO 172.
xxx In fine, the RTC was correct when it dismissed

the complaint of MECO for lack of jurisdiction.
As may be gleaned from said provisions, the However, it erred in referring the parties to
ERB is basically a price or rate-fixing agency. ERC because the agency with authority to
Apparently recognizing this basic function, resolve the dispute was the Department of
Republic Act No. 7638 (An Act Creating the Energy.
Department of Energy, Rationalizing the
Organization and Functions of Government WHEREFORE, the petition is hereby DENIED.
Agencies Related to Energy, and for Other
Purposes), which was approved on December Costs against petitioner.

SO ORDERED. ATTESTATION
RENATO C. CORONA I attest that the conclusions in the above

Associate Justice Decision had been reached in consultation
Chairperson before the case was assigned to the writer of
the opinion of the Court’s Division.
WE CONCUR:
RENATO C. CORONA
Associate Justice
PRESBITERO J. VELASCO, JR. Chairperson
Associate Justice
CERTIFICATION
DIOSDADO M. PERALTA
Associate Justice Pursuant to Section 13, Article VIII of the
Constitution, I certify that the conclusions
MARIANO C. DEL CASTILLO in the above Decision had been reached in
Associate Justice consultation before the case was assigned
to the writer of the opinion of the Court’s
JOSE CATRAL MENDOZA Division.
Associate Justice
ANTONIO T. CARPIO
Acting Chief Justice

Appendices
APPENDIX A

Benefits to Host Communities Pursuant to ER POLICY

1-94, As amended
Objectives
• Section 5 (l) of Republic Act No. 7638,
otherwise known as the “Department of • To lessen conflict of rights among host
Energy Act of 1992” local government units, community and
people affected, the energy resource
Legal Basis developers or power producers and the
appropriate agencies of the national
• Section 66 of Republic Act No. 9136, government.
otherwise known as “Electric Power
Industry Reform (EPIRA) of 2001,” • To promote harmony and cooperation
as detailed in rule 29, Part A of the among host local government units, the
Implementing Rules and Regulations of energy-resource developer or power
EPIRA. producers and the appropriate agencies
of the national government.
• To recognize and provide recompense for
the contribution made by the host local
government units or region.
One centavo per kilowatt hour (P0.01/kWh) of the

Nature of Benefits/ Electricity Sales which shall apply to
Scope of Application Generation Facilities and/or energy resource
development projects located in all barangays,
municipalities, cities, provinces and regions.
Generation facility and/or Energy resource Generation facility and/or energy resource
located in Non-highly urbanized city located in highly urbanized city

* Electrification Fund (EF) at 50% of one centavo * Electrification Fund (EF) at 75% of one centavo
per kWh (P0.005/kWh per kWh (P0.0075/kWh)
* Development and Livelihood Fund (DLF) at 25% * Development and Livelihood Fund (DLF) at 12.5%
of one centavo per kWh (P0.00125/kWh) of one centavo per kWh) (P0.0025/kWh)

* Reforestation, Watershed Management, Health * Reforestation, Watershed Management, Health
and/or Environment (RWMHEEF) and/or Environment Enhancement Fund
At 25% of one centavo per kWh (P0.0025/kWh) Enhancement Fund (RWMHEEF) at 12.5%
of one centavo per kWh (P0.00125/kWh)

Application of Electrification Fund
NON-HIGHLY URBANIZED CITY HIGHLY URBANIZED CITY
For generation facility and/or energy resource For generation facility and/or energy resource
located in a Non-HUC, the P0.01/kWh financial located in a HUC, the P0.01/kWh financial benefit
benefits shall be allocated as follows: shall be allocated as follows:
Seventy-five percent of one centavo per kilowatt

Fifty percent of one centavo per kilowatt hour
hour (P0.0075/kWh) of the total electricity sales of
(P0.005/kWh) of the total electricity sales shall be
all Generation Facilities located in HUC shall be set
set aside as an electrification fund (EF) to be applied
aside into one account as an electrification fund (EF)
in the following radiating order:
to be applied in the following radiating order:
a. Designated resettlement area/s
a. Designated resettlement area/s
b. Host barangay/s
b. Host barangay/s
c. Host municipality/ies
c. Host city/ies
d. Host province/s
d. Province/s nearest to the host city/ies
e. Host region/s
e. Region/s of the host cities
f. Other areas as may be
f. Other areas as may be priotized/determined by
prioritized/determined by the DOE the DOE
Allocation of DLF and RWMHEEF
For non-highly urbanized city For highly urbanized city
* Resettlement Area - 5% * Designated resettlement areas - 10%

* Host Barangay - 20% * Host Barangays - 30%
* Host Municipality/City - 35% * Host City/ies - 60%
* Host Province - 30%
* Host Region - 10%
Summary of Approved Projects

As of March 2010
No. of Projects Type of Projects Amount (in Billions)
2,254 Electrification Projects 2.30

1,011 Development and Livelihood Projects 0.87
900 Reforestation, Watershed, Management, 1.12
Health and/or Environment Enhancement
Note: Excluding Mirant projects and advanced financial assistance

APPENDIX
APPENDIX “B”
“B”

FLOW CHART OF ACTIVITIES FOR THE AVAILMENT OF THE
NON-ELECTRIFICATION FUND (DLF & RWMHEEF)
By LGU/Region (Checking of
(Assisted by PP COMREL) fund
availability)
1. List of Project/Work
program (not later Review/
than March 15 of every Evaluation of
year) Project
Proposal by
2. Sanggunian/RDC NPC-PP/IPP/
resolution NPC-PNOC/
ERD and
3. Project proposal Endorsement
(see page 9) to DOE-EPIMB
4. Required supporting Turnover of

(Days = 13)
documents (see Project to
page 8) LGU/RDC/
Sanctions
Evaluation
Approval and
Release of Fund by
DOE
Approval of
Project and Findings
Signing if DV are
As follows:
> 5M - Secretary
> 1M < 5M
Undersecretary
< 1M – Director Audit
(Days = 13)
Signing of MOA
Project
Release of Implementation
Funds to LGU/ By LGU/RDC
RDC
PP COMREL – Power Plant Community The estimated number of days is based on the assumption
Relations Officer all requirements have been completed. The whole process
ERD – Energy Resource Developer of obtaining signatures on the MOA takes 30 days.

APPENDIX “C”
DEVELOPMENT PROJECTS ENVIRONMENT ENHANCEMENT PROJECTS

• Streetlighting • Fire truck
• Farm to Market Road • Waste Management Equipment
• Multi-Purpose Pavement  Garbage
• Farm produce collection and buying  Dump Truck
section  Bulldozer
• Rice/Corn Milling  Backhoe/Loader
• Communal Irrigation System • Construction/ Installation of Waste
• Small water impounding projects Treatment Facility
• Fishports • Sanitary Landfill Development
• Seawalls • Development of Waste Recovery
• Day Care Center Warehouse
• School Building • Construction of Concrete Sanitary
• Public market Waste Water Collection Facility
• Slaughterhouse
• Public drainage/sewerage system HEALTH RELATED PROJECTS
• Bridge
• Flood control measures • Water supply system
• Municipal Hospital
LIVELIHOOD PROJECTS • Medical equipment/facilities
• Medicinal plant gardens
• Food production/processing
• Ice plant REFORESTATION & WATERSHED
• Livestock and poultry production MANAGEMENT PROJECTS
• Handicraft production
• Aquaculture • Improvement of forest cover
• Skills training for LGU administered • Vengineering measures
livelihood project • Community-based forestry
• Vegetable seed farm management
• Small scale services livelihood • Agro-forestry
projects • Conservation of mangroves
• Corn/Rice Milling • Seedling nursery
• Carpentry/Furniture Shop
• Radio, Refrigerator and TV servicing Funding for the above-listed projects shall
• Garment Weaving include costing of materials, equipment
• Engine mechanic services and labor, exclusive of payment for salaries,
• Electrical wiring and design wages, honoraria, allowances, administrative
• Dressmaking expenses, transportation, and travel
• Gold and silver trading and jewelry expenses, and other similar expenses that
making may be incurred in the processing and release
• Blacksmith shop of funds, and implementation of said projects.
• Welding shop

APPENDIX
APPENDIX “D” “D”
FLOW CHART OF ACTIVITIES FOR THE AVAILMENT OF THE

ELECTRIFICATION FUND
Required /Documents
Sheets
1. Staking Sheects
2. Bill of materials/cost
estimates/Potential
Household connection
3. For NREs, project proposals,

plans, designs and
specifications Project
Implementation AUDIT
By FDU (Technical &
Financial
(Days = ?)
Submit requirements to DOE

EPIMB for review and
evaluation
(Days = 10)
Release of funds Findings

to FDU
Evaluation Approval and
Release of Fund by DOE
Approval of projects and

Signing of DV is as
Follows:
> 5M – Secretary
> 1M < 5M –
Undersecretary Signing of MOA Turnover of
< 1M - Director Project to FDU
(Days = 13)
DV – Disbursement Voucher
FDU – Franchise Distribution Utility

APPENDIX “E”
SUPPORTING DOCUMENTS FOR REFORESTATION, WATERSHED MANAGEMENT,
HEALTH AND/OR ENVIRONMENT ENHANCEMENT PROJECT PROPOSALS
Health Center/
Reforestation/
Water Supply
Agroforestry
Management
Solid Waste
Equipment
Communal
Structural
Measures
Sursary/
Training
Facility/
Erosion
Medical
System
Toilets
DOCUMENTS
1 Resolution from the concerned sanggunian endorsing

X X X X X X X
the project identified during the LGU consultation
1
2 Feasibility Study for projects X X X X X X X
3 Justification of the project to include the following which
X X X X X X X
should be stipulated and/or attached in the project
a Total areas to be planted & type and number of flora
X
species to be planted
b List of existing medical and/or health personnel in the
area and existing proposed health and/or medical- X
related activities
c Certification from local water utility of the adequacy of
X
water supply
d Certification from DOH/local water utility for the
X
potability of water
e List of existing number of dump/garbage trucks X
f Certification from the LGU of the existing dump site X
g Average daily volume of garbage X
h Target beneficiaries X X X X X X X
i Project location sketch map X X X X X X X
j con't.
Disbursement schedule, detailed cost estimate/bill of
materials/detailed specifications/program of
X X X X X X X
work/plans/drawing duly signed by the
Health Center/
Water Supply
Management
Reforestation/
Solid Waste
Equipment
Communal
Structural
Municipal/Provincial Engineer and Mayor/Governor

Measures
Agroforestry
Sursary/
Training
Facility/
Erosion
Medical
System
Toilets
DOCUMENTS
k Cooperative/association's latest financial audit (6 mos.
X X X X X X X
To 1 year prior to project application)2
l Three - five - year projected income statement X X X X X X X
m SEC/CDA/DOLE Certificate of Rgistration 2 X X X X X X X
n Training Design X
o Notarized copy of Deed of Donation/Proof of Transfer
of Private Property/Transfer Certificate of Title or
X X X X X X X
equivalent legal documents justifying public ownership
of lot/site
p Municipal Health Officer/DOH endorsement to manage
the project and Certification that there is no existing
X
health center in the area/feasibility & standard of
equipment/facilities
q Endorsement/Certification from the concerned DENR
Office/Watershed Administrator as to the feasibility of X
the project
r Relevant permits from concerned agencies X X X X X X X
1 as applicable
2 for projects with cooperative/association as project implementor
3 training as a component of a project or sofely training

APPENDIX “F”
SUPPORTING DOCUMENTS FOR DEVELOPMENT AND LIVELIHOOD

PROJECT PROPOSAL
TYPE OF PROJECT
REQUIREMENTS Income
Generating
Infrastructure Training3
Livelihood
Projects
1 Resolution from the concerned Sanggunian endorsing the project

X X X
Identified during the LGU consultation
1
2 Feasibility study for projects X X X
3 Sketch/location map of the project X X X
4 Disbursement schedule, detailed cost estimate, bill of materials,
plans drawings, specifications, program of work duly signed by the X X X
Municipal/Provincial Engineer and Mayor/Governor

5 List of cooperative/association members/borrowers with
X
corresponding amount to be borrowed and propose1
6 Cooperative/association's latest financial statement (6 mos - 1 yr
X X X
prior to project application)2
7 Three - five - year projected income statement X
8 Training Design X
9 Notarize copy of Deed of Donation/Proof of Transfer of Private
Property/Transfer Certificate of Title or equivalent legal documents X
justifying public ownership of lot/side
10 Sanggunian resolution stipulating date of transfer of property,
X
existing use of transferred property
11 Certification of road classification from the concerned host LGU's
X
engineer's office
12 Certified True Copy of SEC/CDA/DOLE Certificate of Registration2
X X X
2
13 Relevant permits from concerned agencies X X X
1 as applicable
2 for projects with cooperative/association as project implementor
3 trainng as a component of a project or sofely training

APPENDIX “G”
FORM 2
SAMPLE FORMAT
PROJECT PROPOSAL
I. Project Title
II. Source of Funds Under E.R. 1-94
• Name of power plant
• Fund Type (DLF, RWHEEF-Resettlement/Barangay/Municipality/City/Province/Region)
• Available Fund
III. Beneficiaries
• Name of local government unit (LGU)
• Number of resident/household/members
IV. Objectives
V. Rationale/Justification
VI. Project Profile
A. Project Description
• Area covered (number of hectares)
• Type of species, mortality rate/sustainability
• Monitoring scheme
• Roles of DENR, LGU, PO
• Land/classification
B. Project Location
C. Summary of Project Cost (Attach detailed Bill of Materials/Labor/Hauling/Equipment
Cost, and Disbursement Schedule)
D. Project Implementator/Implementing Agency
VII. Project Implementation
Activities Time Frame
Prepared By: Endorse By:
__________________________ __________________________

APPENDIX “H”
Benefits to Host Communities Pursuant to Local Government Code
• Chapter II, Section 289 to 294 of the Local Government Code.
Legal Basis
• Section 66 of Republic Act No. 9136, otherwise known as “Electric Power Industry
Reform Act of 2001”, as detailed in rule 29, Part B of the IRR of EPIRA.
The LGUs hosting the national wealth shall have an equitable share the
Scope of proceeds derived from the utilization and development of national wealth,
Application including sharing the same with the inhabitants by way of direct benefits.
Any government agency or government-owned or controlled corporation and

Amount of private corporation or entities engaged in the utilization and development of
Share of Local the national wealth are required to provide share to the host LGUs, based on
Government the following formula, whichever will produce a share higher for the LGU.
Units
• One percent (1%) of the gross sales or receipts of the preceding calendar year; or
• Forty percent (40%)of the national wealth taxes, royalties, fees or charges derived
by the government agency or government owned and controlled corporation
and privately-owned corporation or entities.
a) Eighty percent (80%) of the proceeds shall be applied solely to lower the
cost of the electricity either through subsidy or non-subsidy scheme or
combination of both.
Nature of Benefits
Non-subsidy Scheme
Non-subsidy scheme may take the form but not limited to electrification, technical
upgrading and rehabilitation of distribution lines to reduce electricity losses use of
energy saving devices, and support of the infrastructure facilities servicing the needs
of the public which can all redound to the reduction of the electricity rare of the
area.
Subsidy Scheme
Subsidy scheme will be directly utilized to subsidize cost of power used by the
consumers. This may be applied with or without ceiling or at graduated rates (per
kWh per level of consumption) in the following form which the host LGU may choose
from.
Subsidy per customers, an equal or predetermined level or rate of subsidy per

qualified customer:
• All consumer types
• Residential consumer only; and
• Other preferred types of consumer combinations, such as commercial, industrial,
public buildings, irrigation/communal water system, streetlights, etc.
Subsidy of power consumption, which amount of subsidy depends on the magnitude

of power consumption of qualified consumers:
• All consumer types
• Residential consumer only; and
• Other preferred types of consumer combinations, such as commercial, industrial,
public buildings, irrigation/communal water system, streetlights, etc.
b) Twenty percent (20%) of the proceeds shall be utilized for the development and livelihood
projects which shall be appropriated by their respective Sanggunian.
Allocation of Shares
For non-highly urbanized city For highly urbanized city

* Host Barangay - 35% * Host Barangays - 35%
* Host Municipality/City - 45% * Host City/ies - 65%
* Host Province - 20%
For energy resource located in two (2) or more provinces, or in two (2) or more municipalities/cities or
two (2) or more barangays, their respective shares shall be appropriated on the basis of the following:
• Population - 70%
• Land area - 30%
Where the land area of the host barangays found within the technically delineated energy resource
area and where the population refers to the population of host barangays found wholly or partially
within the technically delineated energy resource.
Monitoring a) The Department of Interior and Local Government (DILG) shall monitor the
compliance of host LGUs. To assist in the monitoring or compliance, all host
LGUs of energy projects are required to submit the following:
• The scheme of electricity rate reduction adopted by the host LGU (with
proper documentation) based on the prescription in the DILG-DOE Joint
Circular 95-01 dated 31 October 1995 at the start of the use of fund or upon
the amendment of scheme by the respective LGU councils; and
• Summary of transactions thirty (30) days after end of each quarter.
The DILG shall furnish the DOE the above information within fifteen (15) days
from the date of the reporting period.
b) The Commission on Audit (COA) shall conduct yearly audit of the national
wealth proceeds consistent with its responsibility to examine all accounts

pertaining to uses of funds and property owned or held in trust by the government
or any of its agencies as mandated under Section 2 of Presidential Decree No.
1445 of 1976.
c) In the event of violation or non-compliance with the provisions of the DILG-DOE

Joint Circulars 95-01 and 89-01, and other relevant issuances, the DILG may,
upon prior notice and hearing, order the project proponent the non-remittance
of the royalty payment to the host LGU concerned pending completion of the
investigation of the concerned LGY if the project proponent is a government-
owned and controlled corporation (GOCC); or notify the Department of Budget
(DBM) regarding such violation and order the non-release of the LGU shares if the
project proponent is a private company. The unremitted funds shall be deposited
in a government bank under escrow.

APPENDIX “I”
SUBSIDY PER CONSUMER
DATA REQUIREMENT:
1) Number of consumer per consumer type (Residential, Commercial, Industrial, Public Bldgs.
Street Lights, etc)
2) Amount of share in national wealth tax for distribution to consumers
ILLUSTRATION:
DATA ASSUMPTIONS:
A.
TYPE OF CONSUMER NUMBER
Residential (Rn) 100
Commercial (Cn) 10
Industrial (In) 1
Public Buildings (Pn) 2
Street Lights (Sn) 15
TOTAL 128
B. NATIONAL WEALTH TAX (NWT) P 50,000
COMPUTATIONS:
1. ALL CONSUMER TYPES
SUBSIDY (S) = NWT
TN
= 50,000
128
= 390.63 per consumer*
2. COMBINATION : Residential, Public Buildings, Street Lights only
SUBSIDY (S) = ____NWT_____
Rn + Pn + Sn
= 100 + 2 + 15
= 50,000
117
= 427.35 per consumer*
3. ALL CONSUMERS BUT WITH AUXILIARY OPTION THAT AMOUNT OF SUBSIDY PER CONSUMER
MUST BE LOWER BY 35% THAN RESIDENTIAL PUBLIC BLDGS., AND STREET LIGHTS.
___NWT______________
SUBSIDY (S) = RN + Pn + Sn + {(Cn + In) x (1 - .35)}

_______________50,000 __________
100 + 2 + 15 + {(10 + 1 ) x .63}
= _____50,000 ____
117 + 7.15
= _____50,000 ___
124.15
= 402.74 per residential, public bldgs, & street lights
cosumers*
SUBSIDY FOR EACH COMMERCIAL & INDUSTRIAL CONSUMER:
= 402.74 x (1 – 0.35) = 402.74 x 0.65 = 261.78*
4. ALL CONSUMERS BUT WITH AUXILIARY OPTION THAT COMMERCIAL AND INDUSTRIAL
CONSUMERS SUBSIDY MUST BE P 100.00 ONLY
SUBSIDY (S) = NWT – (Cn + In) x 100.00)
Rn + Pn + Sn
= 50,000 – ( (10 + 1) x 100)
100 + 2 + 15
= 50,000 - 1,100
117
= 48,900
117
= 417.95 per residential, public bldgs. & street lights consumer
NOTE: The 35% mentioned in # 3 and P100.00 in #4 are variables that can be changed depending
on intended objective of the LGU.
• maximum amount of subsidy that could be extended to each consumer, can still be limited to
a ceiling desired especially if share per consumer is too big depending on LGU objective (i.e.,
avoid waste in energy consumption).
SUBSIDY PER POWER CONSUMPTION
DATA REQUIREMENT:
1) Total kwh consumption for each consumer type

2) Amount of share in national wealth tax for distribution to consumers
3) Rate per kwh (Rkwh)
ILLUSTRATION:
DATA ASSUMPTIONS:
A.
TYPE OF CONSUMER NUMBER
Residential (Rk) 5,000

Commercial (Ck) 1,500
Industrial (Ik) 3,000
Public Buildings (Pk) 700
Street Lights (Sk) 900
TOTAL CONSUMPTION (Tk) 11,100
B. NATIONAL WEALTH TAX (NWT) P 35,000
C. Rate per kwh (RKwh) P 3.50
COMPUTATIONS:
1. ALL CONSUMER TYPES
SUBSIDY (S) - NWT
Tk

= 35,000
11,100
= 3.1532 per kwh
SUBSIDY PER CONSUMER = Computed subsidy (Rkwh) x kwh consumption
2. COMBINATION :
SUBSIDY (S) = ____NWT____
Rk + Pk + Sk
= _____350,000___
5,000 + 700 + 900
= 35,000
6,600
= 5,3030 per kwh
In this case, computer subsidy is more than the rate, thus to compute subsidy per consumer:
SUBSIDY PER CONSUMER = Rate per kwh (Rkw) x Kwh consumption
3. ALL CONSUMERS BUT WITH AUXILIARY OPTION THAT CONSUMPTION IN EXCESS OF 200 KWH
PER MONTH IS NOT ELIGIBLE FOR SUBSIDY
ADDITIONAL DATA REQUIREMENT: Actual Kwh Consumption of all consumers consuming

equal or less that 200 kwh.
DATA ASSUMPTIONS. Total Kwh Consumption of consumers consuming equal to or less than
200 kwh is 7,800 kwh distributed as follows:
Rk 5,000
Ck 1,200
Lk
Pk 700
Sk 900
Tk 7,800
NWT
SUBSIDY = Tk
= 35,000
7,800
= 4.4872 per kwh
In this case, computed subsidy is more that the rate, thus to compute subsidy per consumer
SUBSIDY PER CONSUMER = Rate per Rkwh) x Kwh consumption
NOTE: Auxiliary option of having a ceiling of 200 kwh per month is discretionary, other figures
could be designed based or fitted to consumption pattern of consumers in the concerned area or
based on intended effect to prevailing consumption pattern.
4. ALL CONSUMERS BUT WITH AUXILIARY OPTION THAT AT SPECIFIED LEVELS OF CONSUMPTION,
DIFFERENT LEVELS OF ^
ADDITIONAL DATA REQUIREMENT:
Range of power consumption
Frequency distribution (kwh) of all consumers’ consumption at each range
Discount rate for each range
DATA ASSUMPTIONS:
Pre-Determined Discount Rate at each Range set, but no discount for
Range of
Monthly Kwh Discount Actual Kwh
Consumption Rate (%) Consumption
(R1) 0 - 50 (D1) 100 (K1) 9,400

(R2) 51 - 100 (D2) 75 (K2) 12,800
(R3) 101 - 200 (D3) 50 (K3) 10,650
(R4) 201 & above (D4) 0 (K4) 13,250
46,100
SUBSIDY (S) = NWT – (K1 x Rkwh)

(K2 x D2 + (K3 x D3)
= 35,000 – (9,400 x 3.50)
(12,800 x .75) + (10,650 x .50)
= 36,000 – 32,900
9,600 + 5,325
= 2,100
14,925
= 0.140% per kwh
SUBSIDY FOR EACH KWH:
0 - 50 KWH = P 3.50 x 100% = P 3.50

51 - 100 KWH = P0.1407 x 75% = P 0.1055
101 - 200 KWH = P0.147 x 50% = P0.07035
SUBSIDY FOR R1 ( 0-50 KWH) = 9,400 KWH x P3.50 x 100% = 32,900

SUBSIDY FOR R2 – 100 KWH) = 12,800 KWH x P0.01055 = 1,361
SUBSIDY FOR R3 (101-200 KWH) = 10,650 KWH x P0.07035 = 749
35,000
NOTE: Range of monthly kwh consumption, discount rates and level of consumption set for
availment of subsidy (in this case, the 200 kwh) are variables depending on the discretion
of the LGU.

APPENDIX “J”

Energy Center, Merritt Road, Fort Bonifacio, Taguig City

GOVERNMENT ENERGY MANAGEMENT PROGRAM
Monthly Electricity Consumption Report
For the Month of _______________, 200_

Agency : ______________________________ Telephone Nos.: ______________________________

Address: ______________________________ Fax Nos.: ______________________________

A B C D E F G H
Gross Area Air-Conditioned Number January-June 2004 Monthly
Building Monthly
(square Area of Average monthly Consumption,
Description Savings*
meters) (square meters) Occupants consumption, kWh kWh

kWh Percent, %

(Add rows when necessary)

kWh Savings (G) = E - F
% Savings (H) = G_ x 100
E

Prepared by: _________________________________
(Energy Conservation Officer)

(Start of Submission is September 2005 onwards)


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DEPARTMENT OF ENERGY

COMPENDIUM OF ENERGY LAWS

ELECTRIC POWER INDUSTRY

As members and affiliates of this agency, we should be proud of our accomplishments

JOSE RENE D. ALMENDRAS

An important commitment of the Department of Energy involves the mainstreaming

A valuable tool in achieving this goal comes in the form of a comprehensive

LORETA G. AYSON, CESO I

i. FOREWORD BY THE SECRETARY

VOLUME IV. POWER

CHAPTER I. ELECTRIC POWER INDUSTRY REFORMS

A. REPUBLIC ACT NO. 9136 1

AN ACT ORDAINING REFORMS IN THE ELECTRIC POWER INDUSTRY, AMENDING

o RULES AND REGULATIONS TO IMPLEMENT REPUBLIC ACT NO. 9136,

o RULES AND REGULATIONS IMPLEMENTING SECTION 28 OF

 AMENDMENTS TO SECTION 4(E) OF RULE 3 AND SECTION 7

 DEPARTMENT CIRCULAR NO. 2004-01-001 119

B. PRESIDENTIAL DECREE NO. 40 133

ESTABLISHING BASIC POLICIES FOR THE ELECTRIC POWER INDUSTRY

 EXECUTIVE ORDER NO. 215 134

C. WHOLESALE ELECTRICITY SPOT MARKET 171

D. DEPARTMENT CIRCULAR NO. 2004-06-006 377

E. DEPARTMENT CIRCULAR NO. 2005-06-005 381

CHAPTER II. RURAL POWER PROJECTS

A. ENERGY REGULATIONS NO. 1-94 383

RULES AND REGULATIONS IMPLEMENTING SECTION 5 (i) OF REPUBLIC ACT NO.

 ENERGY REGULATIONS NO. 1-94-A 396

 COA DECISION NO. 2002—240 418

 DEPARTMENT CIRCULAR NO. 2000-10-011 421

B. EXECUTIVE ORDER NO. 119 424

RESTRUCTURING PROGRAM FOR ELECTRIC COOPERATIVES

C. DEPARTMENT CIRCULAR NO. 2004-06-007 428

D. ERC RESOLUTION NO. 22, Series of 2006 432

CHAPTER III. ENERGY EFFICIENCY AND CONSERVATION

A. REPUBLIC ACT NO. 7648 443

AN ACT PRESCRIBING URGENT RELATED MEASURES NECESSARY AND PROPER

B. ADMINISTRATIVE ORDER NO. 103 445

C. ADMINISTRATIVE ORDER NO. 110 448

AMENDING ADMINISTRATIVE ORDER NO. 110 S. 2004 DIRECTING THE

D. MEMORANDUM ORDER NO. 185 460

E. ADMINISTRATIVE ORDER NO. 183 461

F. DEPARTMENT CIRCULAR NO. 2003-12-011 463

 DEPARTMENT CIRCULAR NO. 2004-02-002 465

G. DEPARTMENT CIRCULAR NO. 2004-05-005 479

CHAPTER IV. NATIONAL POWER CORPORATION

A. COMMONWEALTH ACT NO. 120 485

AN ACT CREATING THE “NATIONAL POWER CORPORATION,” PRESCRIBING ITS

B. REPUBLIC ACT NO. 6395 489

AN ACT REVISING THE CHARTER OF THE NATIONAL POWER CORPORATION

 PRESIDENTIAL DECREE NO. 380 500

C. ADMINISTRATIVE ORDER NO. 381 519

PROVIDING FOR THE FULFILLMENT BY THE NATIONAL POWER CORPORATION

D. EXECUTIVE ORDER NO. 473 523

PROVIDING FOR THE SEGREGATION AND UNBUNDLING OF ELECTRICAL POWER

AUTHORIZING AND APPROVING THE DIRECT ASSUMPTION BY THE NATIONAL

CHAPTER V. NATIONAL ELECTRIFICATION ADMINISTRATION

A. REPUBLIC ACT NO. 2717 527

AN ACT TO CREATE THE ELECTRIFICATION ADMINISTRATION, AND OTHER

B. REPUBLIC ACT NO. 6038 530

AN ACT DECLARING A NATIONAL POLICY OBJECTIVE FOR THE TOTAL ELECTRIFICATION

C. PRESIDENTIAL DECREE NO. 269 552

CREATING THE “NATIONAL ELECTRIFICATION ADMINISTRATION” AS A

 PRESIDENTIAL DECREE NO. 1370 583

A. REPUBLIC ACT NO. 1815 589