Duarte, Yevgeny Marie C.

Natural Resources and Environmental Law

Atty. Ben Cabrido
Sunday (1:30PM-4:30PM)

SALIENT FEATURES OF SELECTED ENVIRONMENTAL LAWS

I. PRESIDENTIAL DECREE 706: THE REVISED FORESTRY CODE OF THE

PHILIPPINES, AS AMENDED

The law acknowledges the necessity for reassessing the multiple uses of forest lands and
resources before allowing any utilization thereof to optimize the benefits that can be derived
therefrom. It also puts emphasis not only on such utilization but more importantly on the
protection, rehabilitation, and development of forest lands in order to ensure the continuity of
their productive conditions.

Bureau of Forest Development

The law created and merged of all forestry agencies into the Bureau of Forest Development.
The Bureau shall have authority over all forest land, grazing lands, and all forest reservations
including watershed reservations presently administered by other government agencies or
instrumentalities. It shall be responsible for the protection, development, management,
regeneration, and reforestation of forest lands; the regulation and supervision of the operation
of licensees, lessees and permits for the taking or use of forest products therefrom or the
occupancy or use thereof; the implementation of multiple use and sustained yield management
in forest lands; the protection, development and preservation of national parks, marine parks,
game refuges and wildlife; the implementation of measures and programs to prevent kaingin
and managed occupancy of forest and grazing lands; in collaboration with other bureaus, the
effective, efficient and economic classification of lands of the public domain; and the
enforcement of forestry, reforestation, parks, game and wildlife laws, rules, and regulations.

Utilization and Management

The law sets guidelines in the utilization and management of timber, land, soil, water, wildlife,
recreation value and grass of forest lands. Accordingly, their numerous beneficial uses shall be
evaluated and weighted before allowing the utilization, exploitation, occupation, or possession
thereof, or the conduct of any activity therein. (Sec. 19)

Criminal Offenses

Section 68.
a. Any person who shall cut, gather, collect, remove timber or other forest products from any
forest land, or timber from alienable or disposable public land, or from private land, without
any authority
b. Possess timber or other forest products without the legal documents as required under
existing forest laws and regulations, shall be punished with the penalties imposed under

Articles 309 and 310 of the Revised Penal Code That in the case of partnerships, associations,
or corporations, the officers who ordered the cutting, gathering, collection or possession shall
be liable, and if such officers are aliens, they shall, in addition to the penalty, be deported
without further proceedings on the part of the Commission on Immigration and Deportation.

Section 69

Any person who enters and occupies or possesses, or makes kaingin for his own private use or
for others any forest land without authority under a license agreement, lease, license or permit,
or in any manner destroys such forest land or part thereof, or causes any damage to the timber
stand and other products and forest growths found therein, or who assists, aids or abets any
other person to do so, or sets or negligently permits a fire to be set in any forest land.

Authority of DENR Secretary to Confiscate Forest Products (Sec. 68-A, PD 507 as amended by
EO 277)

In all cases of violations of this Code or other forest laws, rules and regulations, the Department
Head or his duly authorized representative, may order the confiscation of any forest products
illegally cut, gathered, removed, or possessed or abandoned, and all conveyances used either
by land, water or air in the commission of the offense and to dispose of the same in accordance
with pertinent laws, regulations or policies on the matter. This authority is distinct from the
confiscation of forest products in a criminal action provided in Sec. 68 of PD 507. Section 68
pertains to the confiscation of the forest products in a criminal action. It provides that the
Court shall further order the confiscation in favor of the government of the timber or forest
products to cut, gathered, collected or removed, and the machinery, equipment, implements
and tools used therein, and the forfeiture of his improvements in the area.

Arrest, Institution of Criminal Actions (Sec. 80)

A forest officer or employee of the Bureau shall arrest even without warrant any person who
has committed or is committing in his presence any of the offenses identified in Chapter IV of
the law. He shall also seize and confiscate, in favor of the Government, the tools and equipment
used in committing the offense, and the forest products cut, gathered or taken by the offender
in the process of committing the offense. The arresting forest officer or employee shall
thereafter deliver within six (6) hours from the time of arrest and seizure, the offender and the
confiscated forest products, tools and equipment to, and file the proper complaint with, the
appropriate official designated by law to conduct preliminary investigations and file
informations in court.
If the arrest and seizure are made in the forests, far from the authorities designated by law to
conduct preliminary investigations, the delivery to, and filing of the complaint with, the latter
shall be done within a reasonable time sufficient for ordinary travel from the place of arrest to
the place of delivery. The seized products, materials and equipment shall be immediately
disposed of in accordance with forestry administrative orders promulgated by the Department
Head.

II. PRESIDENTIAL DECREE 1067: WATER CODE OF THE PHILIPPINES

The Water Code of the Philippines affirms the principle that all waters belong to the State and
they cannot be the subject to acquisitive prescription. The State may allow the use or
development of waters by administrative concession. The use and development of waters shall
consider usages and be responsive to the changing needs of the country.

The Water Code of the Philippines serves as the basic law establishing the principles and
framework relating to the ownership, appropriation, utilization, exploitation, development,
conservation and protection of water resources and rights to land related thereto.

Ownership of Waters
The following belong to the State:
a) Rivers and their natural beds;
b) Continuous or intermittent waters of springs and brooks running in their natural beds and
the beds
themselves;
c) Natural lakes and lagoons;
d) All other categories of surface waters such as water flowing over lands, water from rainfall
whether
natural or artificial, and water from agriculture runoff, seepage and drainage;
e) Atmospheric water;
f) Subterranean or ground waters; and g) Seawater (Art. 5)
The following waters found on private lands also belong to the State:
a) Continuous or intermittent waters rising on such lands;
b) Lakes and lagoons naturally occurring on such lands;
c) Rain water falling on such lands;
d) Subterranean or ground waters; and
e) Water in swamps and marshes.

The owner of the land where the water is found may use the same for domestic purposes
without securing a permit, provided that such use shall be registered, when required by the
Council. The Council, however, may regulate such use when there is wastage, or in times of
emergency (Art. 6).
Any person who captures or collects water by means of cisterns, tanks, or pools shall have
exclusive control over such water and the right to dispose of the same. (Art. 7)

Appropriation of Waters
Waters may be only be appropriated in accordance with the Code (Art. 9). Accordingly, water
may be appropriated for the following purposes:
a. Domestic
b. Municipal
c. Irrigation
d. Power generation
e. Fisheries
f. Livestock raising
g. Industrial
h. Recreational, and
i. Other purposes (Art. 10)

Use of water for domestic purposes is the utilization of water for drinking, washing, bathing,
cooking or other household needs, home gardens, and watering of lawns or domestic animals.
Use of water for municipal purposes is the utilization of water for supplying the water
requirements of the community.
Use of water for irrigation is the utilization of water for producing agricultural crops.
Use of water for power generation is the utilization of water for producing electrical or
mechanical power. Use of water for fisheries is the utilization of water for the propagation and
culture of fish as a commercial enterprise.
Use of water for livestock raising is the utilization of water for large herds or flocks of animals
raised as a commercial enterprise.
Use of water for industrial purposes is the utilization of water in factories, industrial plants, and
mines, including the use of water as an ingredient of a finished product.
Use of water for recreational purposes is the utilization of water for swimming pools, bath
houses, boating, water skiing, golf courses and other similar facilities in resorts and other places
of recreation.

No person, including government instrumentalities or government-owned or controlled

corporations, shall appropriate water without a water right, which shall be evidenced by a
document known as a water permit.

Water right is the privilege granted by the government to appropriate and use water. (Art. 13).
Further, waters appropriated for a particular purpose may be applied for another purpose upon
approval of the National Water Resources Council (Art. 12). The NWRC was later renamed to
National Water Resources Board pursuant to Executive Order No. 124-A.

III. REPUBLIC ACT NO. 9147: WILDLIFE RESOURCES CONSERVATION AND

PROTECTION ACT
The law was enacted to pursue the following objectives: (a) to conserve and protect wildlife
species and their habitats to promote ecological balance and enhance biological diversity; (b) to
regulate the collection and trade of wildlife; (c) to pursue, with due regard to the national
interest, the Philippine commitment to international conventions, protection of wildlife and
their habitats; and (d) to initiate or support scientific studies on the conservation of biological
diversity.

The scope of the law involves all wildlife species found in all areas of the country, including
protected areas under Republic Act No. 7586, otherwise known as the National Integrated
Protected Areas System (NIPAS) Act, and critical habitats. This Act shall also apply to exotic
species which are subject to trade, are cultured, maintained and/or bred in captivity or
propagated in the country.

Jurisdiction of DENR and DA

The Department of Environment and Natural Resources (DENR) shall have jurisdiction over all
terrestrial plant and animal species, all turtles and tortoises and wetland species, including but
not limited to crocodiles, waterbirds and all amphibians and dugong. On the other hand, the
Department of Agriculture (DA) shall have jurisdiction over all declared aquatic critical habitats,
all aquatic resources, including but not limited to all fishes, aquatic plants, invertebrates and all
marine mammals, except dugong. In the Province of Palawan, jurisdiction herein conferred is
vested to the Palawan Council for Sustainable Development pursuant to Republic Act No. 7611.

Collection, Possession, Exportation/Importation of Wildlife

Gathering or harvesting of wildlife may be allowed in accordance with the rules provided by law
and with least or not detrimental effects to the existing wildlife populations and their habitats.
Collecting of wildlife by indigenous people for traditional use and not primarily for trade,
provided that collection and utilization shall not cover threatened species. The law also
prohibits the possession of wildlife unless the person or entity can prove financial and technical
capability and facility to maintain said wildlife. Wildlife species may be transported locally and
exported to or imported from another country authorized by the DENR Secretary and in
accordance with law provided that the recipient of the wildlife is technically and financially
capable to maintain it.

Introduction, Reintroduction or Restocking of Endemic or Indigenous Wildlife

The introduction, reintroduction or restocking of endemic and indigenous wildlife shall be

allowed only for population enhancement or recovery purposes subject to prior clearance from
the Secretary or the authorized representative. Any proposed introduction shall be subject to a
scientific study which shall focus on the bioecology. The proponent shall also conduct public
consultations with concerned individuals or entities. (Sec. 12)
Introduction of Exotic Wildlife

Bringing exotic species into the country shall not be allowed unless there is a clearance from
the DENR Secretary, but in no case shall they be introduced into protected areas as determined
by law. When allowed, it shall be subject to environmental impact study which shall focus on
the bioecology, socioeconomic and related aspects of the area where the species will be
introduced. The proponent shall also be required to secure the prior informed consent from the
local stakeholders. (Sec. 13)

Commercial breeding or propagation of wildlife resources

Breeding or propagation of wildlife for commercial purposes shall be allowed by the Secretary
or the authorized representative pursuant to Section 6 through the issuance of wildlife
farm/culture permit:

Provided, That only progenies of wildlife raised, as well as unproductive parent stock shall be
utilized for trade: Provided, further, That commercial breeding operations for wildlife,
whenever appropriate, shall be subject to an environmental impact study. (Sec. 17)

Protection of Threatened Species

The Secretary shall determine whether any wildlife species or subspecies is threatened, and
classify the same as critically endangered, endangered, vulnerable, or other accepted
categories based on the best scientific data and with due regard to internationally accepted
criteria. (Sec. 22).

The collection of threatened wildlife, including its by-products and derivatives, shall be allowed
only for scientific or breeding or propagation purposes. Provided that only the accredited
individuals, business, research, educational or scientific entities shall be allowed to collect for
conservation breeding or propagation purposes. (Sec. 23)

No person or entity shall be allowed possession of wildlife unless such person or entity can
prove financial and technical capability and facility to maintain said wildlife. (Sec. 26)

Establishment of Critical Habitats

The Secretary shall designate critical habitats outside protected areas under Republic Act 7586
where threated species are found. All designated critical habitats shall be protected, in
coordination with the local government units and other concerned groups, from any form of
exploitation or destruction which may be detrimental to the survival of the threatened species
dependent therein. (Sec. 25)

Illegal acts
Under the law, it shall be unlawful for any person to willfully and knowingly exploit wildlife
resources and their habitats, or undertake the following acts:
(a) killing and destroying wildlife species, except in the following instances;
(i) when it is done as part of the religious rituals of established tribal groups or indigenous
cultural communities;
(ii) when the wildlife is afflicted with an incurable communicable disease;
(iii) when it is deemed necessary to put an end to the misery suffered by the wildlife;
(iv) when it is done to prevent an imminent danger to the life or limb of a human being; and
(v) when the wildlife is killed or destroyed after it has been used in authorized research or
experiments.
(b) inflicting injury which cripples and/or impairs the reproductive system of wildlife species;
(c) effecting any of the following acts in critical habitat(s):
(i) dumping of waste products detrimental to wildlife;
(ii) squatting or otherwise occupying any portion of the critical habitat;
(iii) mineral exploration and/or extraction;
(iv) burning;
(v) logging; and
(vi) quarrying
(d) introduction, reintroduction or restocking of wildlife resources;
(e) trading of wildlife;
(f) collecting, hunting, or possessing wildlife, their by-products and derivatives;
(g) gathering or destroying of active nests, nest trees, host plants and the like;
(h) maltreating and/or inflicting other injuries not covered by the preceding paragraph; and
(i) transporting of wildlife (Sec. 27)

IV. REPUBLIC ACT 8485: THE ANIMAL WELFARE ACT OF 1998

The Animal Welfare Act of 1998 provides guidelines in supervising and regulating the
establishment and operation of all facilities utilized for breeding, maintaining, keeping, treating
or training all animals in the Philippines either as objects of trade or as household pets (Sec. 1).
It is the duty of the of every person to protect the natural habitat of the wildlife (Sec. 7).

Duty of the Bureau of Animal Industry

The Director of the Bureau of Animal Industry supervises and regulates the establishment,
operation and maintenance of pet shops, kennels, veterinary clinics, veterinary hospitals,
stockyards, corrals, stud farms and zoos and any other form or structure for the confinement of
animals where they are bred, treated, maintained, or kept either for sale or trade or for training
as well as the transport of such animals in any form of public or private transportation facility in
order to provide maximum comfort while in transit and minimize, if not totally eradicate,
incidence of sickness and death and prevent any cruelty from being inflicted upon the animals
(Sec. 3).
Operating Establishment for Animals
No person, association, partnership, corporation, cooperative or any government agency or
instrumentality including slaughter houses shall establish, maintain and operate any pet shop,
kennel, veterinary clinic, veterinary hospital, stockyard, corral, stud farm or stock farm or zoo
for the breeding, treatment, sale or trading, or training of animals without first securing from
the Bureau of Animal Industry a certificate of registration therefor (Sec. 2)

Transporting Animals

No public utility shall transport any such animal without a written permit from the Director of
the Bureau of Animal Industry or his/her authorized representative. No cruel confinement or
restraint shall be made on such animals while being transported.

It is the duty of an owner of any owner or operator of any land, air or water public utility
transporting pet, wildlife and all other animals to provide in all cases adequate, clean and
sanitary facilities for the safe conveyance and delivery thereof to their consignee at the place of
consignment. They shall provide sufficient food and water for such animals while in transit for
more than twelve (12) hours or whenever necessary (Sec. 4).

Punishable Acts

 to torture any animal

 to neglect to provide adequate care, sustenance, or shelter, or maltreat any animal
 to subject any dog or horse to dogfights or horsefights
 to kill or cause or procure animals to be tortured or deprived of adequate care, sustenance or
shelter, or maltreat or use the same in research or experiments not expressly authorized by the
Committee on Animal Welfare
 killing of any animal other than cattle pigs, goats, sheep, poultry, rabbits, carabaos, horses,
deer, and crocodiles (Sec. 7)

Exempted Acts of Killing Animals

Except in the following instances, it is unlawful to kill any animal:

1) When it is done as part of the religious rituals of an established religion or sect or a ritual
required by tribal or ethnic custom of indigenous cultural communities; however, leaders shall
keep records
2) in cooperation with the Committee on Animal Welfare;
3) When the pet animal is afflicted with an incurable communicable disease as determined and
certified by a duly licensed veterinarian;
4) When the killing is deemed necessary to put an end to the misery suffered by the animal as
determined and certified by a duly licensed veterinarian;
5) When it is done to prevent an imminent danger to the life or limb of a human being; and
6) When done for the purpose of animal population control;
7) When the animal is killed after it has been used in authorized research or experiments; and
8) Any other ground analogous

In all the above mentioned cases, including those of cattle, pigs, goats, sheep, poultry, rabbits,
carabaos, horses, deer and crocodiles the killing of the animals shall be done through humane
procedures at all times. Human procedures mean the use of the most scientific methods
available as may be determined and approved by the committee (Sec. 6).

V. PRESIDENTIAL DECREE 1586: ESTABLISHING AN ENVIRONMENTAL IMPACT

STATEMENT SYSTEM, INCLUDING OTHER ENVIRONMENTAL MANAGEMENT

RELATED MEASURES AND FOR OTHER PURPOSES

Presidential Decree 1586 established the Environmental Impact Statement (EIS) System for
every proposed project and undertaking which significantly affect the quality of the
environment (Sec. 2) as required in Section 4 of PD 1151 or the Philippine Environmental Policy.
Sec. 4, PD 1151 provides that all agencies and instrumentalities of the national government,
including government-owned or controlled corporations, as well as private corporations, firms
and entities shall prepare, file and include in every action, project or undertaking which
significantly affects the quality of the environment a detailed statement on: a) the
environmental impact of the proposed action, project or undertaking;
b) any adverse environmental effect which cannot be avoided should the proposal be
implemented;
c) alternative to the proposed action;
d) a determination that the short-term uses of the resources of the environment are consistent
with the maintenance and enhancement of the long-term productivity of the same; and
e) whenever a proposal involves the use of depletable or non-renewable resources, a finding
must be made that such use and commitment are warranted.
Before an environmental impact statement is issued by a lead agency, all agencies having
jurisdiction over, or special expertise on, the subject matter involved shall comment on the
draft environmental impact statement made by the lead agency within thirty (30) days from
receipt of the same.

Environmentally Critical areas and Projects

Under Section 4 of PD 1586, the President of the Philippines may, on his own initiative or upon
recommendation of the National Environmental Protection Council, by proclamation declare
certain projects, undertakings, or areas in the country as environmentally critical.
In accordance with Sec.4, Proclamation No. 2146 was released in order to identify and declare
certain projects determined to be environmentally critical.

A. Environmentally Critical Projects

I. Heavy Industries
a. Non-ferrous metal industries
b. Iron and steel mills
c. Petroleum and petro-chemical industries including oil and gas
d. Smelting plants
II. Resource Extractive Industries
a. Major mining and quarrying projects
b. Forestry projects
1. Logging
2. Major wood processing projects
3. Introduction of fauna (exotic-animals) in public/private forests
4. Forest occupancy
5. Extraction of mangrove products
6. Grazing
c. Fishery Projects
1. Dikes for/and fishpond development projects
III. Infrastructure Projects
a. Major dams b. Major power plants (fossil-fueled, nuclear fueled, hydroelectric, or
geothermal)
c. Major reclamation projects
d. Major roads and bridges

B. Environmentally Critical Areas

1. All areas declared by law as national parks, watershed reserves, wildlife preserves and
sanctuaries;
2. Areas set aside as aesthetic potential tourist spots;
3. Areas which constitute the habitat for any endangered or threatened species of indigenous
Philippine Wildlife (flora and fauna);
4. Areas of unique historic, archaeological, or scientific interests;
5. Areas which are traditionally occupied by cultural communities or tribes;
6. Areas frequently visited and/or hard-hit by natural calamities (geologic hazards, floods,
typhoons, volcanic activity, etc.);
7. Areas with critical slopes;
8. Areas classified as prime agricultural lands;
9. Recharged areas of aquifers;
10. Water bodies characterized by one or any combination of the following conditions;
a. tapped for domestic purposes
b. within the controlled and/or protected areas declared by appropriate authorities
c. which support wildlife and fishery activities
11. Mangrove areas characterized by one or any combination of the following conditions:
a. with primary pristine and dense young growth;
b. adjoining mouth of major river systems;
c. near or adjacent to traditional productive fry or fishing grounds;
d. which act as natural buffers against shore erosion, strong winds and storm floods;
e. on which people are dependent for their livelihood.
12. Coral reefs characterized by one or any combinations of the following conditions:
a. With 50% and above live coralline cover;
b. Spawning and nursery grounds for fish;
c. which act as natural breakwater of coastlines
All other projects, undertakings and areas not declared by the President as environmentally
critical shall be considered as non-critical and shall not be required to submit an environmental
impact statement (Sec. 5, PD 1586). Under PD 1586, no person, partnership, or corporation
shall undertake or operate any such declared environmentally critical project or area without
first securing an Environmental Compliance Certificate issued by the President or his duly
authorized representative (Sec. 4).

VI. REPUBLIC ACT NO. 9136: ELECTRIC POWER INDUSTRY REFORM ACT OF 2001

The law provides a framework for the restructuring of the electric power industry, including the
privatization of the assets of NPC, the transition to the desired competitive structure, and the
definition of the responsibilities of the various government agencies and private entities. Under
Sec. 4 of the law, restructuring is defined as the process of reorganizing the electric power
industry in order to introduce higher efficiency, greater innovation and end-user choice. It shall
be understood as covering a range of alternatives enhancing exposure of the industry to
competitive market forces;

The Power Industry Sectors

By virtue of this law, the electric power industry was categorized into 4 sectors: generation;
transmission; distribution and supply.

Generation Sector

Generation of electricity refers to the production of electricity by a generation company or a co-

generation facility. Generation company refers to any person or entity authorized by the ERC to
operate facilities used in the generation of electricity (Sec. 4[x]). Co-generation facility, on the
other hand, refers to a facility which produces electrical and/or mechanical energy and forms of
useful thermal energy such as heat or steam which are used for industrial commercial heating
or cooling purposes through the sequential use of energy. Power generation is not considered a
public utility operation. Thus, any person or entity engaged or which shall engage in power
generation and supply of electricity shall not be required to secure a national franchise.

However, generation of electric power is a business affected with public interest. Any new
generation company shall, before it operates, secure from the Energy Regulatory Commission
(ERC) a certificate of compliance pursuant to the standards set forth in RA 9136, as well as
health, safety and environmental clearances from the appropriate government agencies under
existing laws.
Thus, the generation of electric power, being a business affected with public interest, is
mandated to be competitive and open. Under this law, open access means the system of
allowing any qualified person the use of transmission, and/or distribution system and
associated facilities subject to the payment of transmission and/or distribution retail wheeling
rates duly approved by the ERC (Sec. 4[ll]). Upon implementation of retail competition and
open access, the prices charged by a generation company for the supply of electricity shall not
be subject to regulation by the ERC except as otherwise provided in the law.

Pursuant to the objective of lowering electricity rates to end-users, sales of generated power by
generation companies shall be value added tax zero-rated. The ERC shall, in determining the
existence of market power abuse or anticompetitive behavior, require from generation
companies the submission of their financial statements (Sec. 6). A generation company may
develop and own or operate dedicated point-to-point limited transmission facilities that are
consistent with the Transmission Development Plan (TDP). TDP refers to the program for
managing the transmission system through efficient planning for the expansion, upgrading,
rehabilitation, repair, and maintenance, to be formulated by DOE and implemented by the
TRANSCO. The law requires that such facilities are required only for the purpose of connecting
to the transmission system, and are used solely by the generating facility, subject to prior
authorization by the ERC: Provided, further, That in the event that such assets are required for
competitive purposes, ownership of the same shall be transferred to the TRANSCO at a fair
market price.

Transmission Sector

Transmission of electricity refers to the conveyance of electricity through the high voltage
backbone system (Sec. 4[ccc]). The transmission of electric power shall be a regulated common
electricity carrier business, subject to the ratemaking powers of the ERC. The ERC shall set the
standards of the voltage transmission that shall distinguish the transmission from the
subtransmission assets (Sec. 7). Subtransmission assets refer to the facilities related to the
power delivery service below the transmission voltages and based on the functional assignment
of assets including, but not limited to stepdown transformers used solely by load customers,
associated switchyard/substation, control and protective equipment, reactive compensation
equipment to improve customer power factor, overhead lines, and the land where such
facilities/equipment are located. These include NPC assets linking the transmission system and
the distribution system which are neither classified as generation nor transmission (Sec. 4[ww]).

The subtransmission functions and assets shall be segregated from the transmission functions,
assets and liabilities for transparency and disposal. The law provides that the subtransmission
assets shall be operated and maintained by National Transmission Company (TRANSCO) until
their disposal to qualified distribution utilities which are in a position to take over the
responsibility for operating, maintaining, upgrading, and expanding said assets. All transmission
and subtransmission related liabilities of NPC shall be transferred to and assumed by the Power
Sector Assets and Liabilities Management Corporation (PSALM Corp).
Distribution Sector
Distribution of electricity refers to the conveyance of electric power by a distribution utility
through its distribution system. Distribution system refers to the system of wires and associated
facilities belonging to a franchised distribution utility extending between the delivery points on
the transmission or subtransmission system or generator connection and the point of
connection to the premises of the end user. Distribution utility refers to any electric
cooperative, private corporation, government-owned utility, or
existing local government unit which has an exclusive franchise-to-operate a distribution
system (Sec. 4).

The distribution of electricity to end users shall be a regulated common carrier business
requiring a national franchise. Distribution of electric power to all end-users may be undertaken
by private distribution utilities, cooperatives, local government units presently undertaking this
function and other duly authorized entities, subject to regulation by the ERC (Sec. 22).

De-Monopolization and Shareholding Dispersal in a Distribution Utility

Incompliance with the constitutional mandate for dispersal of ownership and demonopolization
of public utilities, the holdings of persons, natural or juridical, including directors, officers,
stockholders and related interests, in a distribution utility and their respective holding
companies shall not exceed twenty-five (25%) percent of the voting shares of stock unless the
utility or the company holding the shares or its controlling
stockholders are already listed in the Philippine Stock Exchange (PSE) (Sec. 28)

Functions of Distribution Utilities

A distribution utility shall have the obligation to provide distribution services and connections
to its system for any end-user within its franchise area and shall provide open and non-
discriminatory access to its distribution system to all users.
Any distribution utility shall be entitled to impose and collect distribution wheeling charges and
connection fees from such end-users as approved by the ERC. It shall have the obligation to
supply electricity in the least cost manner to its captive market, subject to the collection of
retail rate duly approved by the ERC.

Captive market refers to electricity end users who do not have the choice of a supplier of
electricity. It is also mandated submit to the ERC a statement of their compliance with the
technical specifications prescribed in the Distribution Code and the performance standards
prescribed in the IRR of RA 9136. It shall prepare and submit to the DOE its annual distribution
development plans.

Distribution utilities shall provide universal service within their franchise, over a reasonable
time from the requirement thereof, including unviable areas, as part of their social obligations,
in a manner that shall sustain the economic viability of the utility, subject to the approval by the
ERC in the case of private or government-owned utilities (Sec. 23).
Universal Charge

Universal charge refers to the charge, if any, imposed for the recovery of the stranded cost and
other purposes pursuant to Section 34 of RA 9136(Sec. 4[ddd]). The universal charge shall be a
non-bypassable charge which shall be passed on and collected from all end-users on a monthly
basis by the distribution utilities. Collections by the distribution utilities and the TRANSCO in any
given month shall be remitted to the PSALM Corp., net of any amount due to the distribution
utility. Any end-user or self-generating entity not connected to a distribution utility shall remit
its corresponding universal charge directly to the TRANSCO.

The universal charge imposed on all electricity end users has the following purposes:
a) Payment for the stranded debts in excess of the amount assumed by the National
Government and stranded contract costs of NPC and as well as qualified stranded contract
costs of distribution
utilities
b) resulting from the restructuring of the industry;
c) Missionary electrification;
d) The equalization of the taxes and royalties applied to indigenous or renewable sources of
energy vis-à-vis imported energy fuels;
e) An environmental charge equivalent to one-fourth of one centavo per kilowatt-hour
(P0.0025/kWh), which shall accrue to an environmental fund to be used solely for watershed
rehabilitation and management. Said fund shall be managed by NPC under existing
arrangements; and
f) A charge to account for all forms of cross-subsidies for a period not exceeding three (3) years
(from effectivity of RA 913).

Supply Sector

Supply of electricity means the sale of electricity by a party other than a generator or a
distributor in the franchise area of a distribution utility using the wires of the distribution utility
concerned (Sec. 4[zz]).

Supply of electricity to the contestable market shall not be considered a public utility operation.
As defined by the law, contestable markets refer to the electricity end-users who have a choice
of a supplier of electricity, as may be determined by the ERC (Sec. 4[h]). For this purpose, any
person or entity which shall engage in the supply of electricity to the contestable market shall
not be required to secure a national franchise. In addition, the prices to be charged by suppliers
for the supply of electricity to the contestable market shall not be subject to regulation by the
ERC. It is only necessary that in its billings to end users, every supplier shall identify and
segregate the components of its supplier's charge (Sec. 29). Supplier’s charge means the charge
imposed by electricity suppliers for the sale of electricity to end-users, excluding the charges for
generation, transmission, and distribution wheeling (Sec. 4[yy]). However, electricity suppliers
shall be subject to the rules and regulations concerning abuse of market power, cartelization,
and other anti-competitive or discriminatory behavior to be promulgated by the ERC. While it
may not be considered a public utility operation, the supply sector is a business affected with
public interest. Except for distribution utilities and electric cooperatives with respect to their
existing franchise areas, all suppliers of electricity to the contestable market shall require a
license from the ERC. For this purpose, the ERC shall promulgate rules and regulations
prescribing the qualifications of electricity suppliers which shall include, among other
requirements, a demonstration of their technical capability, financial capability, and
creditworthiness: Provided, That the ERC shall have authority to require electricity suppliers to
furnish a bond or other evidence of the ability of a supplier to withstand market disturbances or
other events that may increase the cost of providing service.

Entities Created/Governed by RA 9136

Creation of the National Transmission Company

By virtue of RA 0137, the National Transmission Company (TRANSCO) was created, which
assumed the electrical transmission functions of the National Power Corporation. The TRANSCO
shall be wholly owned by the Power Sector Assets and Liabilities Management Corporation
(PSALM Corp.)

TRANSCO acts as the system operator of the nationwide electrical transmission and
sutransmission system. It assumed the power of the NPC with regards its authority and
responsibility for the planning, construction and centralized operation and maintenance of its
high voltage transmission facilities, including grid interconnections and ancillary services (Sec.
7). Grid refers to the high voltage backbone system of interconnected transmission lines,
substations and related facilities (Sec. 4[z]), while ancillary services refer to those services that
are necessary to support the transmission of capacity and energy from resources to loads while
maintaining reliable operation of the transmission system in accordance with good utility
practice and the Grid Code to be adopted in accordance with RA 9136. It is also mandated to
improve and expand its transmission facilities consistent with the Grid Code and the
Transmission Development Plan (TDP) to adequately serve generation companies, distribution
utilities and suppliers requiring transmission service and/or ancillary services through the
transmission system, provided that TRANSCO submits any plan for expansion or improvement
of its facilities for approval by the ERC. Following a public bidding conducted in December 2007,
the TransCo concession was awarded to the National Grid Corporation of the Philippines
(NGCP), which eventually secured a congressional franchise to operate the transmission
network through Republic Act No. 9511. While the congressional franchise to operate the
transmission network was awarded to NGCP, ownership of all transmission assets still remains
with the Philippine government thru TransCo.

Creation of Energy Regulatory Commission (ERC)

The ERC is an independent, quasi-judicial regulatory body that abolished the Energy Regulatory
Board. As provided under Section 43 of the law, the ERC shall promote competition, encourage
market development, ensure customer choice, and penalize abuse of market power in the
restructured electricity industry. In appropriate cases, the ERC is authorized to issue cease and
desist order after due notice and hearing.

Creation of PSALM Corp.

PSALM Corp took ownership of all existing NPC generation assets, liabilities, IPP contracts, real
estate, and all other disposable assets. Under Section 50 of the law, the principal purpose of the
PSALM Corp. is to manage the orderly sale, disposition, and privatization of NPC generation
assets, real estate and other disposable assets, and IPP contracts with the objective of
liquidating all NPC financial obligations and stranded contract costs in an optimal manner.