CHAPTER 3:

Electric Power Industry Reform Act(EPIRA

LAW)
REPUBLIC ACT NO. 9136 (EPIRA LAW of 2001)

AN ACT ORDAINING REFORMS IN THE ELECTRIC POWER

INDUSTRY, AMENDING FOR THE PURPOSE CERTAIN LAWS
ANDFOR OTHER PURPOSES
 CHAPTER I
TITLE AND DECLARATION OF POLICY
SECTION 1. Short Title. – This Act shall be known as the “Electric Power Industry
Reform Act of 2001”.
It shall hereinafter be referred to as the Act.

SECTION 2. Declaration of Policy. – It is hereby declared the policy of the State:

(a) To ensure and accelerate the total electrification of the country;
(b) To ensure the quality, reliability, security and affordability of the supply of electric
power;
(c) To ensure transparent and reasonable prices of electricity in a regime of free and
fair competition and full public accountability to achieve greater operational and
economic efficiency and enhance the competitiveness of Philippine products in the
global market;
(d) To enhance the inflow of private capital and broaden the ownership base of the
power generation, transmission and distribution sectors;
(e) To ensure fair and non-discriminatory treatment of public and private sector
entities in the process of restructuring the electric power industry;
(f) To protect the public interest as it is affected by the rates and services of electric
Utilities and other providers of electric power;
(g) To assure socially and environmentally compatible energy sources and
infrastructure;
(h) To promote the utilization of indigenous and new and renewable energy
resources in power generation in order to reduce dependence on imported energy;
(i) To provide for an orderly and transparent privatization of the assets and liabilities
of the National Power Corporation (NPC);
(j) To establish a strong and purely independent regulatory body and system to
ensure consumer protection and enhance the competitive operation of the electricity
market; and
(k) To encourage the efficient use of energy and other modalities of demand side
management.
SEC. 3. Scope. – This Act shall provide 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.
SEC. 4. Definition of Terms.
(a) “Aggregator” refers to a person or entity, engaged in consolidating electric power demand of
end-users in the contestable market, for the purpose of purchasing and reselling electricity on a group
basis;
(b) “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 this Act;
(c) “Captive Market” refers to electricity end-users who do not have the choice of a supplier of
electricity, as may be determined by the Energy Regulatory Commission (ERC) in accordance with this
Act;
(d) “Central Dispatch” refers to the process of issuing direct instructions to electric power industry
participants by the grid operator to achieve the economic operation and maintenance of quality, stability,
reliability and security of the transmission system;
(e) “Co-Generation Facility” refers to a facility which produces electrical an/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;
(f) “Commission” refers to the decision-making body of the ERC composed of a Chairman and
four (4) members as provided under Section 38 hereof;
(g) “Concession Contract” refers to the award by the government to a qualified private entity of
the responsibility for financing, operating, expanding, maintaining and managing specific
Government-owned assets;
(h) “Contestable Market” refers to the electricity end-users who have a choice of a supplier of
electricity, as may be determined by the ERC in accordance with this Act;
(i) “Customer Service Charge” refers to the component in the retail rate intended for the cost
recovery of customer-related services including, but not limited to, meter reading, billing
administration and collection;
(j) “Demand Side Management” refers to measures undertaken by distribution utilities to
encourage end-users in the proper management of their load to achieve efficiency in the utilization of
fixed infrastructures in the system;
(k) “Department of Energy” or “DOE” refers to the government agency created pursuant to
Republic Act No. 7638 whose expanded functions are provided herein;
(l) “Department of Finance” or “DOF” refers to the government agency created pursuant to
Executive Order No. 127;
(m) “Distribution Code” refers to a compilation of rules and regulations governing electric utilities
in the operation and maintenance of their distribution systems which includes, among others, the
standards for service and performance, and defines and establishes the relationship of the distribution
systems with the facilities or installations of the parties connected thereto;
(n) “Distribution of Electricity” refers to the conveyance of electric power by a distribution utility
Through its distribution system pursuant to the provisions of this Act;
(o) “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;
(p) “Distribution Wheeling Charge” refers to the cost or charge regulated by the ERC for the use
of a distribution system and/or the availment of related services;
(q) “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 in accordance with this Act;
(r) “Electric cooperative” refers to a distribution utility organized pursuant to Presidential Decree
No. 269, as amended, or as otherwise provided in this Act;
(s) “Electric Power Industry Participant” refers to any person or entity engaged in the generation,
transmission, distribution or supply of electricity;
(t) “End-user” refers to any person or entity requiring the supply and delivery of electricity for its
own use;
(u) “Energy Regulatory Board” or “ERB” refers to the independent, quasi-judicial regulatory
body created under Executive Order No. 172, as amended;
(v) “Energy Regulatory Commission” or “ERC” refers to the regulatory agency created herein;
(w) “Franchise Area” refers to a geographical area exclusively assigned or granted to a
distribution utility for distribution of electricity;
(x) “Generation Company” refers to any person or entity authorized by the ERC to operate
facilities used in the generation of electricity;
(y) “Generation of Electricity” refers to the production of electricity by a generation company or
a co-generation facility pursuant to the provisions of this Act;
(z) “Grid” refers to the high voltage backbone system of interconnected transmission lines,
substations and related facilities;
(aa) “Grid Code” refers to the set of rules and regulations governing the safe and reliable
operation, maintenance and development of the high voltage backbone transmission system
and its related facilities;
(bb) “Independent Power Producer” or “IPP” refers to an existing power generating entity which
is not owned by NPC;
(cc) “Inter-Class Cross Subsidy” refers to an amount charged by distribution utilities to industrial
and commercial end-users as well as to other subsidizing customer sectors in order to reduce
electricity rates of other customer sectors such as the residential end-users, hospitals, and streetlights;
(dd) “Inter-Regional Grid Cross Subsidy” refers to an amount embedded in the electricity rates of
NPC charged to its customers located in a viable regional grid in order to reduce the electricity rates
in a less viable regional grid;
(ee) “Intra- Regional Grid Cross Subsidy” refers to an amount embedded in the electricity rates of
NPC charged to distribution utilities and non-utilities with higher load factor and/or delivery voltage
in order to reduce the electricity rates charged to distribution utilities with lower load factor and/or
delivery voltage located in the same regional grid;
(ff) “IPP Administrator” refers to qualified independent entities appointed by PSALM Corporation
who shall administer, conserve and manage the contracted energy output of NPC IPP contracts;
(gg) “Isolated Distribution System” refers to the backbone system of wires and associated facilities
not directly connected to the national transmission system;
(hh) “Lifeline Rate” refers to the subsidized rate given to low-income captive market end-users
who cannot afford to pay at full cost;
(ii) “National Electrification Administration “ or “NEA” refers to the government agency created
under Presidential Decree No. 269, as amended, and whose additional mandate is further set forth
herein;
(jj) “National Power Corporation” or “NPC” refers to the government corporation created under
Republic Act No. 6395, as amended;
(kk) “National Transmission Corporation or “TRANSCO” refers to the corporation organized
pursuant to this Act to acquire all the transmission assets of the NPC;
(ll) “Open Access” refers to 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;
(mm) “Philippine Energy Plan” or “PEP” refers to the overall energy program formulated and
updated yearly by the DOE and submitted to Congress pursuant to Republic Act No. 7638;
(nn) “Power Development Program” or “PDP” refers to the indicative plan for managing
electricity demand through energy-efficient programs and for the upgrading, expansion,
rehabilitation, repair and maintenance of power generation and transmission facilities, formulated
and updated yearly by the DOE in coordination with the generation, transmission and distribution
utility companies;
(oo) “Power Sector Assets and Liabilities Management Corporation” or “PSALM Corp.” refers
to the corporation created pursuant to Section 49 hereof;
(pp) “Privatization” refers to the sale, disposition, change and transfer of ownership and control of
assets and IPP contracts from the Government or a government corporation to a private person or
entity;
(qq) “Renewable Energy Resources” refers to energy resources that do not have an upper limit on
the total quantity to be used. Such resources are renewable on a regular basis and the renewable rate
is rapid enough to consider availability over an indefinite time. These include, among others,
biomass, solar, wind, hydro and ocean energy;
(rr) “Restructuring” refers to 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;
(ss) “Retail Rate” refers to the total price paid by end-users consisting of the charges for
generation, transmission and related ancillary services, distribution, supply and other related charges
for electric service;
(tt) “Small Power Utilities Group” or “SPUG” refers to the functional unit of NPC created to
pursue missionary electrification function;
(uu) “Stranded contract costs of NPC or distribution utility” refer to the excess of the contracted
cost of electricity under eligible contracts over the actual selling price of the contracted energy
output of such contracts in the market. Such contracts shall have been approved by the ERB as of
December 31, 2000;
(vv) “Stranded Debts of NPC” refer to any unpaid financial obligations of NPC which have not
been liquidated by the proceeds from the sales and privatization of NPC assets;
(ww) “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 step-down transformers used solely by load customers, associated witchyard/substation, control
and protective equipment, reactive compensation equipment to improve customer power factor,
overhead lines, and the land 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;
(xx) “Supplier” refers to any person or entity authorized by the ERC to sell, broker, market or
aggregate electricity to the end-users;
(yy) “Supplier’s Charge” refers to the charge imposed by electricity suppliers for the sale of
electricity to end-users, excluding the charges for generation, transmission and distribution wheeling;
(zz) “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;
(aaa) “Transmission Charge” refers to the regulated cost or charges for the use of a
transmission system which may include the availment of ancillary services;
(bbb) “Transmission Development Plan” or “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 pursuant to this Act;
(ccc) “Transmission of Electricity” refers to the conveyance of electricity through the high voltage
backbone system; and
(ddd) “Universal Charge” refers to the charge, if any, imposed for the recovery of the stranded
cost and other purposed pursuant to Section 34 hereof.
CHAPTER II
ORGANIZATION AND OPERATION OF THE ELECTRIC POWER
INDUSTRY
SEC. 5. Organization. – The electric power industry shall be divided into four (4) sectors, namely:
generation, transmission, distribution and supply.
SEC. 6. Generation Sector. – Generation of electric power, a business affected with public interest,
shall be competitive and open.
SEC. 7 Transmission Sector.- The transmission of electric power shall be regulated common
electricity carries business, subject to the ratemaking powers of the ERC.
SEC. 8. Creation of the National Transmission Company.
There is hereby created a National Transmission Corporation, hereinafter referred to as TRANSCO,
which shall assume the electrical transmission function of the National Power Corporation (NPC),
and have the powers and functions hereinafter granted. The TRANSCO shall assume the authority
and responsibility of NPC for the planning, construction and centralized operation and maintenance
of its high voltage transmission facilities, including grid interconnections and ancillary services.
SEC. 9. Functions and Responsibilities. – Upon the effectivity of this Act, the TRANSCO shall have
the following functions and responsibilities:
(a) Act as the system operator of the nationwide electrical transmission and subtransmission system,
to be transferred to it by NPC;
(b) Provide open and non-discriminatory access to its transmission system to all electricity users;
(c) Ensure and maintain the reliability, adequacy, security, stability and integrity of the nationwide
electrical grid in accordance with the performance standards for the operations and maintenance of
the grid, as set forth in a Grid Code to be adopted and promulgated by the ERC within six (6)
months from the effectivity of this Act;
(d) Improve and expand its transmission facilities, consistent with the Grid Code and the
Transmission Development Plan (TDP) to be promulgated pursuant to this Act, to adequately serve
generation companies, distribution utilities and suppliers requiring transmission service and/or
ancillary services through the transmission system: Provided, That TRANSCO shall submit any plan
for expansion or improvement of its facilities for approval by the ERC;
(e) Subject to technical constraints, the grid operator of the TRANSCO shall provide central dispatch
of all generation facilities connected, directly or indirectly, to the transmission system in accordance
with the dispatch schedule submitted by the market operator, taking into account outstanding
bilateral contracts; and
(f) TRANSCO shall undertake the preparation of the TDP.
SEC. 10. Corporate Powers of the TANSCO. – As a corporate entity, TRANSCO
shall have the following corporate powers:
(a) To have continuous succession under its corporate name until otherwise
provided by law;
(b) To adopt and use a corporate seal and to change, alter or modify the same, if
necessary;
(c) To sue and be sued;
(d) To enter into a contract and execute any instrument necessary or convenient for
the purpose for which it is created;
(e) To borrow funds from any source, whether private or public, foreign or
domestic, and issue bonds and other evidence of indebtedness: Provided. That in the
case of the bond issues, it shall be subject to the approval of the President of the
Philippines upon recommendation of the Secretary of Finance: Provided, further,
That foreign loans shall be obtained in accordance with existing laws, rules and
regulations of the Bangko Sentral ng Pilipinas;
(f) To maintain a provident fund which consists of contributions made by both the
TRANSCO and its officials and employees and their earnings for the payment of
benefits to such officials and employees or their heirs under such terms and conditions
as it may prescribe;
(g) To do any act necessary or proper to carry out the purpose for which it is created, or
which, from time to time, may be declared by the TRANSCO Board as necessary,
useful, incidental or auxilliary to accomplish its purposes and objectives; and,
(h) Generally, to exercise all the powers of a corporation under the corporation law
insofar as they are not inconsistent with this Act.
SEC. 11. TRANSCO Board of Directors.
All the powers of the TRANSCO shall be vested in and exercised by a Board of Directors. The
Board shall be composed of a Chairman and six (6) members. The Secretary of the Department of
Finance (DOF) shall be the ex officio Chairman of the Board. The other members of the TRANSCO
Board shall include the Secretary of the Department of Energy (DOE), the Secretary of the
Department of Environment and Natural Resources (DENR), the President of TRANSCO, and three
(3) members to be appointed by the President, each representing Luzon, Visayas and Mindanao.
SEC. 12. Powers and Duties of the Board. – The following are the powers of the Board:
(a) To provide strategic direction for TRANSCO, and formulate medium and long-term strategies
pursuant to the vision, mission, and objectives of TRANSCO;
(b) To develop and adopt policies and measures for the efficient and effective management and
operation of TRANSCO;
(c) To organize, re-organize, and determine the organizational structure and staffing patterns of
TRANSCO; abolish and create offices and positions; fix the number of its officers and employees;
transfer and re-align such officers and personnel; fix their compensation, allowance, and benefits;
(d) To fix the compensation of the President of TRANSCO and to appoint and fix the compensation
of other corporate officers;
(e) For cause, to suspend or remove any corporate officer appointed by the Board;
(f) To adopt and set guidelines for the employment of personnel on the basis of merit, technical
competence, and moral character; and
(g) Any provisions of the law to the contrary notwithstanding, to write-off bad debts.
SEC. 13. Board Meetings. – The Board shall meet as often as may be necessary uponthe
call of the Chairman of the Board or by a majority of the Board members.
SEC. 14 . Board Per Diems and Allowances. – The members of the Board shall receiveper
diem for each regular or special meeting of the board actually attended by them,and, upon
approval of the Secretary of the Department of Finance, such otherallowances as the Board
may prescribe.
SEC. 15 . Quorum. – The presence of at least four (4) members of the Board
shallconstitute a quorum, which shall be necessary for the transaction of any business. The
affirmative vote of a majority of the members present in a quorum shall beadequate for the
approval of any resolution, decision or order, except when the Boardshall otherwise agree
that a greater vote is required.
SEC. 16. Powers of the President of TRANSCO. – The President of TRANSCO shall
beappointed by the President of the Philippines. In the absence of the Chairman,
thePresident shall preside over board meetings.
The President of TRANSCO shall be the Chief Executive Officer of TRANSCO
andshall have the following powers and duties:
(a) To execute and administer the policies and measures approved by the Board, and
takeresponsibility for the efficient discharge of management functions;
(b) To oversee the preparation of the budget of TRANSCO;
(c) To direct and supervise the operation and internal administration of TRANSCO and, for
thispurpose, may delegate some or any of his administrative responsibilities and duties to
otherofficers of TRANSCO;
(d) Subject to the guidelines and policies set up by the Board, to appoint and fix the number and
compensation of subordinate officials and employees of TRANSCO; and for cause, to remove,
suspend, or otherwise discipline any subordinate employee of TRANSCO;
(e) To submit an annual report to the Board on the activities and achievements of TRANSCO atthe
close of each fiscal year and upon approval thereof, submit a copy to the President of thePhilippines
and to such other agencies as may be required by law;
(f) To represent TRANSCO in all dealings and transactions with other offices, agencies, and
instrumentalities of the Government and with all persons and other entities, private or public,
domestic or foreign; and
(g) To exercise such other powers and duties as may be vested in him by the Board from time totime.
SEC. 17. Exemption from the Salary Standardization Law. – The salaries and benefits of
employees in the TRANSCO shall be exempt from Republic Act. No. 6758 and shall be
fixed by the TRANSCO Board.
SEC. 18. Profits. – The net profit, if any, of TRANSCO shall be remitted to the
PSALMCorp. not later than ninety (90) days after the immediately preceding quarter.
SEC. 19. Transmission Charges. – The transmission charges of the TRANSCO shall be
filed with and approved by the ERC pursuant to Paragraph (f) of Section 43 hereof.
SEC. 20. TRANSCO Related Businesses. – TRANSCO may engage in any related business
which maximizes utilization of its assets: Provided, That a portion of the net income
derivedfrom such undertaking utilizing assets which form part of the rate base shall be
used toreduce transmission wheeling rates as determined by the ERC. Such portion of net
incomeused to reduce the transmission wheeling rates shall not exceed fifty percent (50%)
of the netincome derived from such undertaking.Separate accounts shall be maintained for
each business undertaking to ensure that the transmission business shall neither subsidize
in any way such business undertaking nor encumber its transmission assets in any way to
support such business.
SEC. 21. TRANSCO Privatization. – Within six (6) months from the effectivity of this Act,the
PSALM Corp. shall submit a plan for the endorsement by the Joint Power Commission and the
approval of the President of the Philippines. The President of the Philippines thereafter shall direct
PSALM Corp. to award in open competitive bidding, the transmissionfacilities, including grid
interconnections and ancillary services to a qualified party eitherthrough an outright sale or a
concession contract. The buyer/concessionaire shall beresponsible for the improvement, expansion,
operation, and/or maintenance of itstransmission assets and the operation of any related business.
The award shall result in maximum present value of proceeds to the national government. In case a
concession contract is awarded, the concessionaire shall have a contract period of twenty-five (25)
years,subject to review and renewal for a maximum period of another twenty-five (25) years.
In any case, the awardee shall comply with the Grid code and the TDP as approved. The
saleagreement/concession contract shall include, but not limited to, the provision for performance
and financial guarantees or any other covenants which the national government may require.
Failure to comply with such obligations shall result in the imposition of appropriate sanctions
orpenalties by the ERC.
The awardee shall be financially and technically capable, with proven domestic and./orinternational
experience and expertise as a leading transmission system operator. Such experience must be with a
transmission system of comparable capacity and coverage as the Philippines
SEC. 22. Distribution Sector. – The distribution of electricity to end-users shall be a
regulatedcommon carrier business requiring a national franchise. Distribution of electric power to
all end-users maybe undertaken by private distribution utilities, cooperatives, local government
units presently undertaking this function and other duly authorized entities, subject toregulation
by the ERC.
SEC. 23. Functions of Distribution Utilities. – A distribution utility shall have the obligation
toprovide distribution services and connections to its system for any end-user within its franchise
area consistent with the distribution code. Any entity engaged therein 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
andconnection fees from such end-users as approved by the ERC.
A distribution utility shall have the obligation to supply electricity in the least cost manner to
itscaptive market, subject to the collection of retail rate duly approved by the ERC.
To achieve economies of scale in utility operations, distribution utilities may, after due noticeand
public hearing, pursue structural and operational reforms such as but not limited to, jointactions
between or among the distribution utilities, subject to the guidelines issued by the ERC.Such joint
actions shall result in improved efficiencies, reliability of service, reduction of costs and
compliance to the performance standards prescribed in the IRR of this Act.
• Distribution utilities shall submit to the ERC a statement of their compliance with the
technicalspecifications prescribed in the Distribution Code and the performance standards
prescribed in the IRR ofthis Act. Distribution utilities which do not comply with any of the
prescribed technical specifications andperformance standards shall submit to the ERC a plan to
comply, within three (3) years, with saidprescribed technical specifications and performance
standards. The ERC shall, within sixty (60) days uponreceipt of such plan, evaluate the same and
notify the distribution utility concerned of its action. Failure tosubmit a feasible and credible plan
and/or failure to implement the same shall serve as grounds for theimposition of appropriate
sanctions, fines or penalties.
• Distribution utilities shall prepare and submit to the DOE their annual distributions developments
plans. Inthe case of electric cooperatives, such plans shall be submitted through the National
Electrification Administration.
• Distribution utilities shall provide universal service within their franchise, over a reasonable time
from therequirement thereof, including unviable areas, as part of their social obligations, in a
manner that shallsustain the economic viability of the utility, subject to the approval by the ERC
in the case of private orgovernment-owned utilities. To this end, distribution utilities shall submit
to the DOE their plans forserving such areas as part of their distribution development plans.
Areas which a franchised distributionutility cannot or does not find viable may be transferred to
another distribution utility, if any is available, who will provide the service, subject approval by
ERC. In cases where franchise holders fail and/or refuseto service any area within their franchise
territory and allowed another utility to service the same, then thestatus quo shall be respected.
SEC. 24. Distribution Wheeling Charge. – The distribution wheeling charges ofdistribution utilities
shall be filed with and approved by the ERC pursuant toParagraph (f) of Section 43 hereof.
SEC.25. Retail Rate. – The retail rates charged by distribution utilities for the supplyof electricity in
their captive market shall be subject to regulation by the ERC basedon the principle of full recovery
of prudent and reasonable economic costs incurred,or such other principles that will promote
efficiency as may be determined by theERC.
Every distribution utility shall identify and segregate in its bills to end-users thecomponents of the
retail rate, as defined in this Act.
SEC. 26. Distribution Related Businesses. – Distribution utilities may, directly or indirectly,
engagein any related business undertaking which maximizes the utilization of their assets:
Provided, That a portion of the net income derived from such undertaking utilizing assets which
form part of the rate base shall be used to reduce its distribution wheeling charges as determined
by the ERC. Provided, further, That such portion of net income used to reduce their distribution
wheeling charges shall not exceed fifty percent (50%) of the net income derived from
suchundertaking: Provided, finally, That separate accounts are maintained for each
businessundertaking to ensure that the distribution business shall neither subsidize in any way
such business undertaking nor encumber its distribution assets in any way to support such
business.
SEC. 27. Franchising Power in the Electric Power Sector. – The power to grant franchises to
personsengaged in the transmission and distribution of electricity shall be vested exclusively in
theCongress of the Philippines and all laws inconsistent with this Act particularly, but not limited
to, Section 43 of PD 269, otherwise known as the “National Electrification Decree”, are hereby
deemed repealed or modified accordingly: Provided, That all existing franchises shall be allowed
to their full term: Provided, further, That in the case of electric cooperatives, renewalsand
cancellations shall remain with the National Electrification Commission under theNational
Electrification Administration for five (5) more years after the enactment of this Act.
SEC. 28. De-Monopolization and Shareholding Dispersal. – In compliance with theconstitutional
mandate for dispersal of ownership and de-monopolization of publicutilities, the holdings of persons,
natural or juridical, including directors, officers,stockholders and related interests, in a distribution
utility and their respective holdingcompanies shall not exceed twenty-five (25%) percent of the
voting shares of stockunless the utility or the company holding the shares or its controlling
stockholders arealready listed in the Philippine Stock Exchange (PSE): Provided, That
controllingstockholders of small distribution utilities are hereby required to list in the PSE withinfive
(5) years from the enactment of this Act if they already own the stocks. Newcontrolling stockholders
shall undertake such listing within five (5) years from thetime they acquire ownership and control. A
small distribution company is one whosepeak demand is equal to or less than Ten megawatts
(10MW).
The ERC shall, within sixty (60) days from the effectivity of this Act, promulgate therules and
regulations to implement and effect this provision.
This Section shall not apply to electric cooperatives.
SEC. 29. Supply Sector. – The supply sector is a business affected with public interest. Except
fordistribution utilities and electric cooperatives with respect to their existing franchise areas, all
suppliersof 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
ofelectricity suppliers which shall include, among other requirements, a demonstration of their
technicalcapability, financial capability, and creditworthiness: Provided, That the ERC shall have
authority to requireelectricity suppliers to furnish a bond or other evidence of the ability of a supplier
to withstand marketdisturbances or other events that may increase the cost of providing service.
Any law to the contrary notwithstanding , supply of electricity to the contestable market shall not
beconsidered a public utility operation. For this purpose, any person or entity which shall engage in
thesupply of electricity to the contestable market shall not be required to secure a national franchise.
The prices to be charged by suppliers for the supply of electricity to the contestable market shall not
besubject to regulation by the ERC.
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.
In its billings to end- users, every supplier shall identify and segregate the components of its
supplier’s charge, as defined herein.
SEC. 30. Wholesale Electricity Spot Market. – Within one (1) year from the effectivity ofthis Act,
the DOE shall establish a wholesale electricity spot market composed of the wholesale electricity
spot market participants. The market shall provide themechanism for identifying and setting the price
of actual variations from thequantities transacted under contracts between sellers and purchasers of
electricity.
Jointly with the electric power industry participants, the DOE shall formulate thedetailed rules for
the wholesale electricity spot market. Said rules shall provide themechanism for determining the
price of electricity not covered by bilateral contractsbetween sellers and purchasers of electricity
users. The price determinationmethodology contained in said rules shall be subject to the approval of
ERC. Said rulesshall also reflect accepted economic principles and provide a level playing field to
allelectric power industry participants. The rules shall provide, among others, proceduresfor:
(a) Establishing the merit order dispatch instructions for each time period;
(b) Determining the market-clearing price for each time period;
(c) Administering the market, including criteria for admission to and termination from the market
which includes security or performance bond requirements, voting rights of the participants,
surveillance and assurance of compliance of the participants with the rules and theformation of the
wholesale electricity spot market governing body;
(d) Prescribing guidelines for the market operation in system emergencies; and
(e) Amending the rules
The wholesale electricity spot market shall be implemented by a market operator in accordance
with the wholesale electricity spot market rules. The market operator shall be an
autonomousgroup, to be constituted by DOE, with equitable representation from electric power
industryparticipants, initially under the administrative supervision of the TRANSCO. The
marketoperator shall undertake the preparatory work and initial operation of the wholesale
electricity spot market. Not later than one (1) year after the implementation of the wholesale
electricity spot market, an independent entity shall be formed and the functions, assets and
liabilities of themarket operator shall be transferred to such entity with the joint endorsement of
the DOE andthe electric power industry participants. Thereafter, the administrative supervision of
the TRANSCO over such entity shall cease.
Subject to the compliance with the membership criteria, all generating companies, distribution
utilities, suppliers,bulk consumers/end-users and other similar entities authorized by the ERC
shall be eligible to becomemembers of the wholesale electricity spot market.
The ERC may authorize other similar entities to become eligible as members, either directly or
indirectly, of the wholesale electricity spot market. All generating companies, distribution utilities,
suppliers, bulk consumers/end-users and other similar entities authorized by the ERC, whether
direct or indirect members of the wholesaleelectricity spot market, shall be bound by the
wholesale electricity spot market, shall be bound by the wholesaleelectricity spot market rules
with respect to transactions in that market.
NEA may, in exchange for adequate security and a guarantee fee, act as a guarantor for purchases of
electricityin the wholesale electricity spot market by any electric cooperative or small distribution
utility to support theircredit standing consistent with the provisions hereof. For this purpose, the
authorized capital stock of NEA ishereby increased to Fifteen billion pesos (P15,000,000,000.00)
All electric cooperatives which have outstanding uncollected billings to any local government unit
shall reportsuch billings to NEA which shall, in turn, report the same to the Department of Budget
and Management(DBM) for collection pursuant to Executive Order 190 issued on December 21,
1999.
The cost of administering and operating the wholesale electricity spot market shall be recovered by
the marketoperator through a charge imposed to all market members: Provided, That such charge
shall be filed with andapproved by the ERC.
In cases of national and international security emergencies or natural calamities, the ERC is hereby
empoweredto suspend the operation of the wholesale electricity spot market or declare a temporary
wholesale electricityspot market failure.
SEC. 31. Retail Competition and Open Access. – Any law to the contrary notwithstanding, retail
competitionand open access on distribution wires shall be implemented not later than three (3) years
upon theeffectivity of this Act, subject to the following conditions:
(a) Establishment of the wholesale electricity spot market.
(b) Approval of unbundled transmission and distribution wheeling charges;
(c) Initial implementation of the cross subsidy removal scheme;
(d) Privatization of at least seventy (70%) percent of the total capacity of generating assets of NPC
inLuzon and Visayas; and
(e) Transfer of the management and control of at least seventy percent (70%) of the total energy
outputof power plants under contract with NPC to the IPP Administrators.
Upon the initial implementation of open access, the ERC shall allow all electricity end-users with
amonthly average peak demand of at least one megawatt (1MW) for the preceding twelve (12)
months tobe the contestable market. Two (2) years thereafter, the threshold level for the contestable
market shall bereduced to seven hundred fifty kilowatts (750kW). At this level, aggregators shall be
allowed to supplyelectricity to end-users whose aggregate demand within a contiguous area is at
least seven hundred fiftykilowatts (750kW). Subsequently and every year thereafter, the ERC shall
evaluate the performance of themarket. On the basis of such evaluation, it shall gradually reduce
threshold level until it reaches thehousehold demand level. In the case of electric cooperatives, retail
competition and open access shall beimplemented not earlier than five (5) years upon the effectivity
of this Act.
SEC. 32. NPC Stranded Debt and Contract Cost Recovery. – Stranded debt of NPC shall refer toany
unpaid financial obligations of NPC.
Stranded contract costs of NPC shall refer to the excess of the contracted cost of electricityunder
eligible IPP contracts of NPC over the actual selling price of the contracted energyoutput of such
contracts in the market. Such contracts shall have been approved by the ERB asof December 31,
2000.
The national government shall directly assume a portion of the financial obligations of NPC in an
amount not to exceed Two hundred billion pesos (P200,000,000,000,00)
The ERC shall verify the reasonable amounts and determine the manner and duration for thefull
recovery of stranded debt and stranded contract costs as defined herein: Provided, That theduration
for such recovery shall not be shorter than fifteen (15) years nor longer than twenty-five (25) years.
The ERC shall, at the end of the first year of the implementation of strandedcost recovery and every
year thereafter, conducts a review to determine whether there is under-recovery or over-recovery and
adjust (tune-up) the level of stranded cost recovery chargeaccordingly. Any amount to be included
for stranded cost recovery shall be reflected as aseparate item in the consumer billing statement.
SEC. 33. Distribution Utilities Stranded Contract Costs Recovery. – Stranded contract
costs of distribution utilities shall refer to the excess of the contracted cost of electricity
under eligible contracts of such utilities over the actual selling price of such contracts in the
market. Suchcontracts shall have been approved by the ERB as of December 31, 2000.
A distribution utility shall recover stranded contract costs: Provided, however, That such
costs ofthe IPPs of distribution utilities are subject to review by ERC in order to determine
fairness and reasonableness in relation to the average price of land-based IPP projects
entered into by NPC at the time they were contracted. The ERC shall take into
consideration all factors that affect thetotal cost of NPC IPP generation projects, including
direct or indirect subsidies or incentivesprovided by the Government.
Within one (1) year from the start of open access, any distribution utility that seeks
recovery of stranded contract costs shall file with the ERC notice of such intent together
with an estimateof such obligations, including the present value thereof and such other
supporting data as maybe required by the ERC. Any distribution utility that does not file
within the date specified shall not be eligible for such recovery.
Any distribution utility which seeks to recover stranded cost shall have a duty tomitigate its
potential stranded contract costs by making reasonable best efforts to:
(a) reduce the costs of its existing contracts with IPPs to a level not exceeding theaverage
buying price of other land-based electric power generators; and
(b) submit to an annual earnings review by the ERC and use its earnings above itsauthorized
rate of return to reduce the book value of contracts until the end of thestranded cost recovery
period.
Other mitigating measures which are reasonably known and generally accepted withinthe
electric power industry shall be utilized. The ERC shall not require the distributionutility to take
a loss to reduce stranded contract costs or divest assets, unless thedivestiture is imposed as a
penalty as provided herein.
The relevant distribution utility shall submit to the ERC quarterly reports showing theamount of
stranded costs recovered and the balance remaining to be recovered.
Within three (3) months from the submission of the application for stranded costrecovery
by the relevant distribution utilities, the ERC shall verify the reasonableamounts and
determine the manner and duration for the full recovery of strandedcontract costs as
defined herein: Provided, That the duration for such recovery shall notbe shorter than
fifteen (15) years nor longer than twenty-five (25) years. Any amount tobe included for
stranded cost recovery shall be reflected as a separate item in theconsumer billing
statement.
The ERC shall, at the end of the first year of the implementation of stranded costrecovery
and every year thereafter, conduct a review to determine whether there isunder-recovery or
over recovery and adjust (true-up) the level of stranded cost recoverycharge accordingly. In
case of an over-recovery,
The ERC shall ensure that any excess amount shall be remitted to the Special Trust
Fundcreated under Section 34 hereof. A separate account shall be created for these amounts
which shall be held in trust for any future claims of distribution utilities for strandedcost
recovery. At the end of the stranded cost recovery period, any remaining amount inthis
account shall be used to reduce the electricity rates to the end-users.
SEC. 34. Universal Charge. – Within one (1) year from the effectivity of this Act, auniversal
charge to be determined, fixed and approved by the ERC., shall be imposedon all electricity
end-users for he following purposes:
(a) Payment for the stranded debts in excess of the amount assumed by the NationalGovernment
and stranded contract costs of NPC and as well as qualified strandedcontract costs of
distribution utilities resulting from the restructuring of the industry;
(b) Missionary electrification;
(c) The equalization of the taxes and royalties applied to indigenous or renewablesources of
energy vis-a-vis imported energy fuels;
(d) 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 underexisting
arrangements; and
(e) A charge to account for all forms of cross-subsidies for a period not exceeding three(3)
years.
The universal charge shall be non-bypassablecharge which shall be passed on
andcollected from all end-users on a monthly basis by the distribution utilities.
Collectionsby the distribution utilities and the TRANSCO in any given month shall
be remitted tothe PSALM Corp. on or before the fifteenth (15th) of the succeeding
month, net ofany amount due to the distribution utility. Any end-user or self-
generating entity notconnected to a distribution utility shall remit its corresponding
universal charge directlyto the TRANSCO.
The PSALM Corp., as administrator of the fund, shall create a Special Trust Fund
which shall be disbursed only for the purposes specified herein in an open
andtransparent manner. All amounts collected for the universal charge shall be
distributedto the respective beneficiaries within a reasonable period to be provided
by the ERC.
SEC. 35. Royalties, Returns and Tax Rates for Indigenous Energy Resources. – The
provisionsof Section 79 of Commonwealth Act No. 137 (C.A. No. 137) and any law to
thecontrary notwithstanding, the President of the Philippines shall reduce the
royalties,returns and taxes collected for the exploitation of all indigenous sources of
energy,including but not limited to, natural gas and geothermal steam, so as to effect
parityof tax treatment with the existing rates for imported coal, crude oil, bunker fuel
andother imported fuels.
To ensure lower rates for end-users, the ERC shall forthwith reduce the rates of
powerfrom all indigenous sources of energy.
SEC. 36. Unbundling of Rates and Functions. – Within six (6) months from the
effectivityof this Act, NPC shall file with the ERC its revised rates. The rates of NPC
shall beunbundled between transmission and generation rates and the rates shall reflect
therespective costs of providing each service. Inter-grid and intra-grid cross subsidies
forboth the transmission and the generation rates shall be removed in accordance
withthis Act.
Within six (6) months from the effectivity of this Act, each distribution utility shall
fileits revised rates for the approval by the ERC. The distribution wheeling charge
shall beunbundled from the retail rate and the rates shall reflect the respective costs
of providing each service. For both the distribution retail wheeling and supplier’s
charges,inter-class subsidies shall be removed in accordance with this Act.
Within six (6) months from the date of submission of revised rates by NPC and
eachdistribution utility, the ERC shall notify the entities of their approval.
Any electric power industry participant shall functionally and structurally unbundle
itsbusiness activities and rates in accordance with the sectors as identified in Section
5hereof. The ERC shall ensure full compliance with this provision.