REPUBLIC ACT NO.

9136 (i) To provide for an orderly and

transparent privatization of the assets
AN ACT ORDAINING REFORMS IN THE
and liabilities of the National Power
ELECTRIC POWER INDUSTRY, AMENDING
Corporation (NPC).
FOR THE PURPOSE CERTAIN LAWS AND
FOR OTHER PURPOSES (j) To establish a strong and purely
independent regulatory body and
Be it enacted by the Senate and the House of
system to ensure consumer protection
Representatives of the Philippines in Congress
and enhance the competitive operation
assembled:
of the electricity market; and
CHAPTER I
(k) To encourage the efficient use of
TITLE AND DECLARATION OF POLICY
energy and other modalities of demand
Section 1. Short Title. - This Act shall be side management.
known as the "Electric Power Industry Reform
Section 3. Scope. - This Act shall provide a
Act of 2001". It shall hereinafter be referred to
framework for the restructuring of the electric
as the Act.
power industry, including the privatization of the
Section 2. Declaration of Policy. - It is hereby assets of NPC, the transition to the desired
declared the policy of the State: competitive structure, and the definition of the
responsibilities of the various government
(a) To ensure and accelerate the total agencies and private entities.
electrification of the country;
Section 4. Definition of Terms. -
(b) To ensure the quality, reliability,
security and affordability of the supply of (a) "Aggregator" refers to a person or
electric power; entity, engaged in consolidating electric
power demand of end-users in the
(c) To ensure transparent and contestable market, for the purpose of
reasonable prices of electricity in a purchasing and reselling electricity on a
regime of free and fair competition and group basis;
full public accountability to achieve
greater operational and economic (b) "Ancillary Services" refer to those
efficiency and enhance the services that are necessary to support
competitiveness of Philippine products the transmission of capacity and energy
in the global market; from resources to loads while
maintaining reliable operation of the
(d) To enhance the inflow of private transmission system in accordance with
capital and broaden the ownership base good utility practice and the Grid Code
of the power generation, transmission to be adopted in accordance with this
and distribution sectors in order to Act;
minimize the financial risk exposure of
the national government; (c) "Captive market" refers to electricity
end-users who do not have the choice
(e) To ensure fair and non-discriminatory of a supplier of electricity, as may be
treatment of public and private sector determined by the Energy Regulatory
entities in the process of restructuring Commission (ERC) in accordance with
the electric power industry; this Act;
(f) To protect the public interest as it is (d) "Central Dispatch" refers to the
affected by the rates and services of process of scheduling and issuing direct
electric utilities and other providers of instructions by the grid operator to
electric power; achieve the economic operation and
(g) To assure socially and maintenance of quality, stability,
environmentally compatible energy reliability and security of the
sources and infrastructure; transmission system;

(h) To promote the utilization of (e) "Co-generation Facility" refers to a

indigenous and new and renewable facility which produces electrical and/or
energy resources in power generation in mechanical energy and forms of useful
order to reduce dependence on thermal energy such as heat or steam
imported energy; which are used for industrial commercial
heating or cooling purposes through the distribution system and/or the availment
sequential use of energy of related services;
(f) "Commission" refers to the decision- (o) "Distribution Retail Supply Rate"
making body of the ERC composed of a refers to the total price paid by end-
Chairman and four (4) members as users consisting of the charges for
provided under Section 38 hereof; generation, transmission and related
ancillary services, distribution, supply
(g) "Concession Contract" refers to the
and other related charges for electric
award by the government to a qualified
service;
private entity of the responsibility for
financing, operating, expanding, (p) "Distribution Utility" refers to any
maintaining and managing specific electric cooperative, private corporation,
Government-owned assets; government-owned utility or existing
local government unit which has an
(h) "Contestable Market" refers to the
exclusive franchise to operate a
electricity end-users who have a choice
distribution system in accordance with
of a supplier of electricity, as may be
this Act;
determined by the ERC in accordance
with this Act; (q) "Electric Cooperative" refers to a
distribution utility organized pursuant to
(i) "Department of Energy" or "DOE"
Presidential Decree No. 269, as
refers to the government agency
amended, or as otherwise provided in
created pursuant to Republic Act No.
this Act;
7638 whose expanded functions are
provided herein; (r) "Electric Power Industry Participant"
refers to any person or entity engaged in
(j) "Department of Finance" or "DOF"
the generation, transmission, distribution
refers to the government agency
or supply of electricity;
created pursuant to Executive Order No.
127; (s) "End-user" refers to any person or
entity requiring the supply and delivery
(k) "Distribution Code" refers to a
of electricity for its own use;
compilation of rules and regulations
governing electric utilities in the (t) "Energy Regulatory Board" or "ERB"
operation and maintenance of their refers to the independent, quasi-judicial
distribution systems which includes, regulatory body created under Executive
among others, the standards for service Order No. 172, as amended;
and performance, and defines and
(u) "Energy Regulatory Commission" or
establishes the relationship of the
"ERC" refers to the regulatory agency
distribution systems with the facilities or
created herein;
installations of the parties connected
thereto; (v) "Franchise Area" refers to a
geographical area exclusively assigned
(l) "Distribution of Electricity" refers to
or granted to a distribution utility for
the conveyance of electric power by a
distribution of electricity;
distribution utility through its distribution
system pursuant to the provisions of this (w) "Generation Company" refers to any
Act; person or entity authorized by the ERC
to operate facilities used in the
(m) "Distribution System" refers to the
generation of electricity;
system of wires and associated facilities
belonging to a franchised distribution (x) "Generation of Electricity" refers to
utility extending between the delivery the production of electricity by a
points on the transmission or generation company or a co-generation
subtransmission system or generator facility pursuant to the provisions of this
connection and the point of connection Act;
to the premises of the end-user;
(y) "Grid" refers to the high voltage
(n) "Distribution Retail Wheeling backbone system of interconnected
Charge" refers to the cost or charge transmission lines, substations and
regulated by the ERC for the use of a related facilities;
(z) "Grid Code" refers to the set of rules (ii) "Philippine Energy Plan" or "PEP"
and regulations governing the safe and refers to the overall energy program
reliable operation, maintenance and formulated and updated yearly by the
development of the high voltage DOE for submission to Congress
backbone transmission system and its pursuant to Republic Act No. 7638;
related facilities;
(jj) "Power Development Program" or
(aa) "Implementing Rules and "PDP" refers to the indicative plan for
Regulations" or "IRR" refers to the managing electricity demand through
implementing rules and regulations energy-efficient programs and for the
consistent with this Act promulgated by upgrading, expansion, rehabilitation,
the DOE in consultation with the electric repair and maintenance of power
power industry participants and generation and transmission facilities,
representatives of the business sector formulated and updated yearly by the
and approved by the Joint DOE in coordination with the generation,
Congressional Power Commission to transmission and electric utility
implement the provisions of this Act; companies;
(bb) "Independent Power Producer" or (kk) "Power Sector Assets and Liabilities
"IPP" refers to an existing power Management Corporation" or "PSALM
generating entity which is not owned by Corp." refers to the corporation
the government; organized pursuant to Section 49
hereof;
(cc) "Isolated Distribution System" refers
to the low or high voltage backbone (ll) "Privatization" refers to the sale,
system of wires and associated facilities disposition, change and transfer of
not directly connected to the national ownership and control of assets and IPP
transmission system; contracts from the Government or a
government corporation to a private
(dd) "Lifeline Rate" refers to the
person or entity;
subsidized rate given to low-income
captive market end-users who cannot (mm) "Renewable Energy Resources"
afford to pay at full cost; refers to energy resources that do not
have an upper limit on the total quantity
(ee) "National Electrification
to be used. Such resources are
Administration" or "NEA" refers to the
renewable on a regular basis and the
government agency created under
renewable rate is rapid enough to
Presidential Decree No. 269, as
consider availability over an indefinite
amended, and whose additional
time. These include, among others,
mandate is further set forth herein;
biomass, solar, wind, hydro and ocean
(ff) "National Power Corporation" or energy;
"NPC" refers to the government
(nn) "Restructuring" refers to the
corporation created under Republic Act
process of reorganizing the electric
No. 6395, as amended;
power industry in order to introduce
(gg) "National Transmission higher efficiency, greater innovation and
Corporation" or "TRANSCO" refers to end-user choice. It shall be understood
the corporation organized to acquire all as covering a range of alternatives
the transmission assets of the NPC enhancing exposure of the industry to
pursuant to this Act; competitive market forces;

(hh) "Open Access" refers to the (oo) "Small Power Utilities Group" or
provision of allowing any qualified user "SPUG" refers to the functional unit of
the use of transmission, and/or NPC created to pursue missionary
distribution system and associated electrification function;
facilities subject to the payment of
(pp) "Stranded contract costs of NPC or
transmission and/or distribution retail
distribution utility" refer to the excess of
wheeling rates duly approved by the
the contracted cost of electricity under
ERC;
eligible contracts over the actual selling
price of such contracts in the market.
Such contracts shall have been (xx) "Transmission of Electricity" refers
accredited by the DOE or NPC and to the conveyance of electricity through
approved by the ERB as of the the high voltage backbone system; and
effectivity of this Act;
(yy) "Universal Charge" refers to the
(qq) "Stranded Debts of NPC" refer to charge, if any, imposed for the recovery
any unpaid financial obligations of NPC of the stranded cost and other purposes.
which have not been liquidated by the
CHAPTER II
proceeds from sales and privatization of
ORGANIZATION AND OPERATION OF THE
NPC assets;
ELECTRIC POWER INDUSTRY
(rr) "Subtransmission Assets" refer to
Section 5. Organization. - The electric power
the facilities related to the power
industry shall be divided into four (4) sectors,
delivery service below the transmission
namely: generation; transmission; distribution
voltages and defined as facilities based
and supply.
on the functional assignment of assets
including, but not limited to, step-down Section 6. Generation Sector. - Generation of
transformers solely used by load electric power shall be competitive and open.
customers, associated
switchyard/substation, control and Upon the effectivity of this Act, any new
protective equipment, reactive generation company shall, before it
compensation equipment to improve operates, secure from the Energy
customer power factor, overhead lines, Regulatory Commission a certificate of
and the land where such compliance pursuant to the standards
facilities/equipment are located, where set forth in this Act, as well as health,
applicable. These include NPC assets safety and environmental clearances
linking the transmission system and the from the appropriate government
distribution system which are neither agencies under existing laws.
classified as generation nor Any law to the contrary notwithstanding,
transmission; power generation shall not be
(ss) "Supplier" refers to any person or considered a public utility operation. For
entity authorized by the ERC to sell, this purpose, any person or entity
broker, market or aggregate electricity to engaged or which shall engage in power
the end-users; generation and supply of electricity shall
not be required to secure a local or
(tt) "Supply Charge" refers to the charge national franchise.
imposed by electricity suppliers for the
sale of electricity to end-users, Upon implementation of retail
excluding the charges for generation, competition and open access, the prices
transmission and distribution wheeling; charged by a generation company for
supply of electricity shall not be subject
(uu) "Supply of Electricity" means the to regulation by the ERC except as
sale of electricity by persons or entities otherwise provided in this Act
authorized pursuant to this Act;
Pursuant to the objective of lowering
(vv) "Transmission Charge" refers to the electricity rates to end-users, sales of
regulated cost or charges for the use of generated power by generation
a transmission system which may companies shall be value added tax
include the availment of ancillary zero-rated.
services
The ERC shall, in determining the
(ww) "Transmission Development Plan" existence of market power abuse or
or "TDP" refers to the program for anti-competitive behavior, require from
managing the transmission system generation companies the submission of
through efficient planning for the their individual pricing formulas as well
expansion, upgrading, rehabilitation, as their financial statements.
repair and maintenance, to be
formulated by DOE and implemented by Section 7. Transmission Sector. - The
the TRANSCO pursuant to this Act; transmission of electric power shall be a
regulated common electricity carrier business, for operating, maintaining, upgrading,
subject to the ratemaking powers of the ERC. and expanding said assets. All
transmission and subtransmission
The ERC shall set the standards of the
related liabilities of NPC shall be
voltage transmission that shall
transferred to and assumed by the
distinguish the transmission from the
PSALM Corp.
subtransmission assets. Pending the
issuance of such new standards, the TRANSCO shall negotiate with and
distinction between the transmission thereafter transfer such functions,
and subtransmission assets shall be as assets, and associated liabilities to the
follows: 230 kilovolts and above in the qualified distribution utility or utilities
Luzon Grid, 69 kilovolts and above in connected to such subtransmission
the Visayas and in the isolated facilities not later than two (2) years
distribution systems, and 138 kilovolts from the effectivity of this Act or the start
and above in the Mindanao Grid: of open access, whichever comes
Provided, That for the Visayas and the earlier: Provided, That in the case of
isolated distribution system, should the electric cooperatives, the TRANSCO
69 kilovolt line not form part of the main shall grant concessional financing over
transmission grid and be directly a period of twenty (20) years: Provided,
connected to the substation of the however, That the installment payments
distribution utility, it shall form part of the to TRANSCO for the acquisition of
subtransmission system. subtransmission facilities shall be given
first priority by the electric cooperatives
Section 8. Creation of the National
out of the net income derived from such
Transmission Company. - There is hereby
facilities. The TRANSCO shall
created a National Transmission Corporation,
determine the disposal value of the
hereinafter referred to as TRANSCO, which
subtransmission assets based on the
shall assume the electrical transmission
revenue potential of such assets.
function of the National Power Corporation,
and have the powers and functions hereinafter In case of disagreement in valuation,
granted. The TRANSCO shall assume the procedures, ownership participation and
authority and responsibility of NPC for the other issues, the ERC shall resolve such
planning, construction and centralized issues.
operation and maintenance of its high voltage
The take over by a distribution utility of
transmission facilities, including grid
any subtransmission asset shall not
interconnections and ancillary services.
cause a diminution of service and
Within six (6) months from the effectivity quality to the end-users. Where there
of this Act, the transmission and are two or more connected distribution
subtransmission facilities of NPC and all utilities, the consortium or juridical entity
other assets related to transmission shall be formed by and composed of all
operations, including the nationwide of them which has been granted a
franchise of NPC for the operation of the franchise to operate the
transmission system and the grid, shall subtransmission asset by the ERC. The
be transferred to the TRANSCO. The subscription rights of each distribution
TRANSCO shall be wholly owned by the utility involved shall be proportionate to
Power Sector Assets and Liabilities their load requirements unless otherwise
Management Corporation (PSALM agreed by the parties.
Corp.).
Aside from the PSALM Corp.,
The subtransmission functions and TRANSCO and connected distribution
assets shall be segregated from the utilities, no third party shall be allowed
transmission functions, assets and ownership or management participation,
liabilities for transparency and disposal: in whole or in part, in such
Provided, That the subtransmission subtransmission entity.
assets shall be operated and maintained
The TRANSCO may exercise the power
by TRANSCO until their disposal to
of eminent domain subject to the
qualified distribution utilities which are in
requirements of the Constitution and
a position to take over the responsibility
existing laws. Except as provided
 herein, no person, company or entity (f) TRANSCO shall undertake the
other than the TRANSCO shall own any preparation of the TDP. In the
transmission facilities. preparation of the TDP, TRANSCO shall
consult the other sectors of the power
Prior to the transfer of the transmission
industry such as the generation
functions by NPC to TRANSCO, and
companies, distribution utilities, and the
before promulgation of the Grid Code,
electricity end-users. The TDP shall be
ERC shall ensure that NPC shall
submitted to the DOE for integration
provide to all electric power industry
with the Power Development Program
participants open and non-
and the National Energy Plan, provided
discriminatory access to its transmission
for in Republic Act No. 7638 otherwise
system. Any violation thereof shall be
known as "the Department of Energy Act
subject to the fines and penalties
of 1992".
imposed herein.
A generation company may develop and
Section 9. Functions and Responsibilities. -
own or operate dedicated point-to-point
Upon the effectivity of this Act, the TRANSCO
limited transmission facilities that are
shall have the following functions and
consistent with the TDP: Provided, That
responsibilities:
such facilities are required only for the
(a) Act as the system operator of the purpose of connecting to the
nationwide electrical transmission and transmission system, and are used
subtransmission system, to be solely by the generating facility, subject
transferred to it by NPC; to prior authorization by the ERC:
Provided, further, That in the event that
(b) Provide open, equal and non- such assets are required for competitive
discriminatory access to its transmission purposes, ownership of the same shall
system to all electricity users; be transferred to the TRANSCO at a fair
(c) Ensure and maintain the reliability, market price: Provided, finally, That in
adequacy, security, stability and integrity case of disagreement on the fair market
of the nationwide electrical grid in price, the ERC shall determine the fair
accordance with the performance market value of the asset.
standards for the operation and Section 10. Corporate Powers of the
maintenance of the grid, as set forth in a TRANSCO. - As a corporate entity, TRANSCO
Grid Code to be adopted and shall have the following corporate powers:
promulgated by the ERC within six (6)
months from the effectivity of this Act; (a) To have continuous succession
under its corporate name until otherwise
(d) Improve and expand its transmission provided by law;
facilities, consistent with the Grid Code
and the Transmission Development Plan (b) To adopt and use a corporate seal
(TDP) to be promulgated pursuant to and to change, alter or modify the same,
this Act, to adequately serve generation if necessary;
companies, distribution utilities and
(c) To sue and be sued;
suppliers requiring transmission service
and/or ancillary services through the (d) To enter into a contract and execute
transmission system: Provided, That any instrument necessary or convenient
TRANSCO shall submit any plan for for the purpose for which it is created;
expansion or improvement of its
(e) To borrow funds from any source,
facilities for approval by the ERC;
whether private or public, foreign or
(e) Subject to technical constraints, the domestic, and issue bonds and other
grid operator of the TRANSCO shall evidence of indebtedness: Provided,
provide central dispatch of all generation That in the case of the bond issues, it
facilities connected, directly or indirectly, shall be subject to the approval of the
to the transmission system in President of the Philippines upon
accordance with the dispatch schedule recommendation of the Secretary of
submitted by the market operator, taking Finance: Provided, further, That foreign
into account outstanding bilateral loans shall be obtained, for and in behalf
contracts; and of TRANSCO, in accordance with law
 and the rules and regulations of the Section 12. Powers and Duties of the Board. -
Bangko Sentral ng Pilipinas; The following are the powers of the Board:
(f) To maintain a provident fund which (a) To provide strategic direction for
consists of contributions made by both TRANSCO, and formulate medium and
the TRANSCO and its officials and long-term strategies pursuant to the
employees and their earnings for the vision, mission, and objectives of
payment of benefits to such officials and TRANSCO;
employees or their heirs under such
(b) To develop and adopt policies and
terms and conditions as it may
measures for the efficient and effective
prescribe;
management and operation of
(g) To do any act necessary or proper to TRANSCO;
carry out the purpose for which it is
(c) To organize, re-organize, and
created, or which, from time to time,
determine the organizational structure
may be declared by the TRANSCO
and staffing pattern of TRANSCO;
Board as necessary, useful, incidental or
abolish and create offices and positions;
auxiliary to accomplish its purposes and
fix the number of its officers and
objectives; and,
employees; transfer and re-align such
(h) Generally, to exercise all the powers officers and personnel; fix their
of a corporation under the corporation compensation, allowance, and benefits;
law insofar as they are not inconsistent
(d) To fix the compensation of the
with this Act.
President of TRANSCO and to appoint
Section 11. TRANSCO Board of Directors. - and fix the compensation of other
All the powers of the TRANSCO shall be corporate officers;
vested in and exercised by a Board of
(e) For cause, to suspend or remove
Directors. The Board shall be composed of a
any corporate officer appointed by the
Chairman and six (6) members. The Secretary
Board;
of the Department of Finance (DOF) shall be
the ex-officio Chairman of the Board. The other (f) To adopt and set guidelines for the
members of the TRANSCO Board shall include employment of personnel on the basis
the Secretary of the Department of Energy of merit, technical competence, and
(DOE), the Secretary of the Department of moral character; and
Environment and Natural Resources (DENR),
the President of TRANSCO, one member each (g) Any provisions of the law to the
representing Luzon, Visayas and Mindanao. contrary notwithstanding, to write-off bad
debts.
The members of the Board shall be
appointed by the President of the Section 13. Board Meetings. - The Board shall
Philippines and shall serve for a term of meet as often as may be necessary upon the
six (6) years, except that any person call of the Chairman of the Board or by a
appointed to fill-in a vacancy shall serve majority of the Board members.
only the unexpired term of his/her Section 14. Board Per Diems and
predecessor in office. All members of Allowances. - The members of the Board shall
the Board shall be professionals of receive per diem for each regular or special
recognized competence and expertise in meeting of the Board actually attended by
the fields of engineering, finance, them, and, upon approval of the Secretary of
economics, law or business the Department of Finance, such other
management. No member of the Board allowances as the Board may prescribe.
or any of his relatives within the fourth
civil degree of consanguinity or affinity Section 15. Quorum. - The presence of at
shall have any interest, either as least four (4) members of the Board shall
investor, officer or director, in any constitute a quorum, which shall be necessary
generation company or distribution utility for the transaction of any business. The
or other entity engaged in transmitting, affirmative vote of a majority of the members
generating and supplying electricity present in a quorum shall be adequate for the
specified by ERC. approval of any resolution, decision or order
except when the Board shall agree that a Section 18. Profits. - The net profit, if any, of
greater vote is required. TRANSCO shall be remitted to the PSALM
Corp. not later than thirty (30) days after the
Section 16. Powers of the President of
immediately preceding quarter.
TRANSCO. - The President of TRANSCO shall
be appointed by the President of the Section 19. Transmission Charges. - The
Philippines. In the absence of the Chairman, transmission charges of the TRANSCO shall
the President shall preside over Board be filed with and approved by the ERC
meetings. The TRANSCO President shall be pursuant to paragraph (f) of Section 43 hereof.
the Chief Executive Officer of TRANSCO.
Section 20. TRANSCO Related Businesses. -
The President of TRANSCO shall have the TRANSCO may engage in any related
following powers and duties: business which maximizes utilization of its
assets: Provided, That a portion of the net
(a) To execute and administer the
income derived from such undertaking utilizing
policies and measures approved by the
assets which form part of the rate base shall be
Board, and take responsibility for the
used to reduce transmission wheeling rates as
efficient discharge of management
determined by the ERC. Such portion of net
functions;
income used to reduce the transmission
(b) To oversee the preparation of the wheeling rates shall not exceed fifty percent
budget of TRANSCO; (50%) of the net income derived from such
undertaking.
(c) To direct and supervise the operation
and internal administration of TRANSCO Separate accounts shall be maintained for
and, for this purpose, may delegate each business undertaking to ensure that the
some or any of his administrative transmission business shall neither subsidize
responsibilities and duties to other in any way such business undertaking nor
officers of TRANSCO encumber its transmission assets in any way to
support such business.
(d) Subject to the guidelines and policies
set up by the Board, to appoint and fix Section 21. TRANSCO Operations &
the number and compensation of Maintenance (O&M) Concessionaire. - The
subordinate officials and employees of TRANSCO shall award, in open competitive
TRANSCO; and for cause, to remove, bidding, a concession contract to a qualified
suspend, or otherwise discipline any party for the operation, maintenance,
subordinate employee of TRANSCO improvement and expansion of its transmission
assets and the operation of any related
(e) To submit an annual report to the business for a period of twenty-five (25) years,
Board on the activities and subject to review and renewal for a maximum
achievements of TRANSCO at the close period of another twenty-five (25) years. The
of each fiscal year and upon approval contract shall include, but not limited to, the
thereof, submit a copy to the President provision for performance and financial
of the Philippines and to such other guarantees or any other covenants which may
agencies as may be required by law be required in order to fulfill the obligations of
(f) To represent TRANSCO in all the concession contract.
dealings and transactions with other The TRANSCO O & M Concessionaire
offices, agencies, and instrumentalities shall comply with the Grid Code and the
of the Government and with all persons TDP as approved. Failure to comply with
and other entities, private or public, such obligations shall result in the
domestic or foreign; and imposition of appropriate sanctions or
(g) To exercise such other powers and penalties by the ERC: Provided,
duties as may be vested in him by the however, That in cases of major or
Board from time to time. serious economic and/or technical
reasons, TRANSCO O & M
Section 17. Exemption from the Salary Concessionaire may seek authority from
Standardization Law. - The salaries and the ERC to defer any expansion or
benefits of employees in the TRANSCO shall improvement.
be exempt from Republic Act No. 6758 and
shall be fixed by the TRANSCO Board.
 The concessionaire shall be financially standards prescribed in the IRR of this
and technically capable, with proven Act. Distribution utilities which do not
domestic and/or international comply with any of the prescribed
experience and expertise as a leading technical specifications and
transmission system operator under a performance standards shall submit to
competitive electric power industry the ERC a plan to comply, within three
structure. The experience of the (3) years, with said prescribed technical
strategic partner must be with a specifications and performance
transmission system of equal, if not standards. The ERC shall, within sixty
greater, capacity and coverage as the (60) days upon receipt of such plan,
Philippines. evaluate the same and notify the
distribution utility concerned of its action.
Section 22. Distribution Sector. - The
Failure to submit a feasible and credible
distribution of electricity to end-users shall be a
plan and/or failure to implement the
regulated common carrier business requiring a
same shall serve as grounds for the
franchise. Distribution of electric power to all
imposition of appropriate sanctions,
end-users may be undertaken by private
fines or penalties.
distribution utilities, cooperatives, local
government units presently undertaking this Distribution utilities shall prepare and
function and other duly authorized entities, submit to the DOE their annual
subject to regulation by the ERC. distribution development plans. In the
case of electric cooperatives, such plans
Section 23. Functions of Distribution Utilities. -
shall also be submitted through the
A distribution utility shall have the obligation to
National Electrification Administration.
provide distribution services and connections
to its system for any end-user within its Distribution utilities shall provide
franchise area consistent with the distribution universal service within their franchise,
code. Any entity engaged therein shall provide including unviable areas, as part of their
open and non-discriminatory access to its social obligations in a manner that shall
distribution system to all users. sustain the economic viability of the
utility, subject to the approval by the
Any distribution utility shall be entitled to
ERC in the case of private or
impose and collect distribution retail
government-owned utilities. Areas which
wheeling charges and connection fees
a franchised distribution utility cannot or
from such end-users as approved by the
does not find viable may be transferred
ERC. A distribution utility shall have the
to another distribution utility, if any is
obligation to supply electricity in the
available, who will provide the service,
least cost manner to its captive market,
subject to approval by ERC. In cases
subject to the collection of distribution
where franchise holders fail and/or
retail supply rate duly approved by the
refuse to service any area within their
ERC.
franchise territory and allowed another
To achieve economies of scale in utility utility to service the same, then the
operations, distribution utilities may, status quo shall be respected. To this
after due notice and public hearing, end, distribution utilities shall submit to
pursue structural and operational the DOE their plans for serving such
reforms such as but not limited to, joint areas as part of their distribution
actions between or among the development plans. In cases of major or
distribution utilities, subject to the serious economic and/or technical
guidelines issued by the ERC. Such reasons, the distribution utility shall seek
joint actions shall result in improved prior authority from the ERC to defer
efficiencies, reliability of service, such expansion or improvement.
reduction of costs and compliance to the
Distribution utilities may exercise the
performance standards prescribed in the
power of eminent domain subject to the
IRR of this Act. Distribution utilities shall
requirements of the constitution and
submit to the ERC a statement of their
existing laws.
compliance with the technical
specifications prescribed in the Section 24. Distribution Retail Wheeling
Distribution Code and the performance Charge. - The retail wheeling rates of
distribution utilities shall be filed with and ownership and de-monopolization of public
approved by the ERC pursuant to paragraph (f) utilities, the holdings of persons, natural or
of Section 43 hereof. juridical, including directors, officers,
stockholders and related interests, in a
Section 25. Distribution Retail Supply Rate. -
generation company, distribution utility and
The rates charged by distribution utilities for
their respective holding companies shall not
the supply of electricity in their captive market
exceed fifteen (15%) percent of the voting
shall be subject to regulation by the ERC
shares of stock unless the utility or the
based on the principle of full recovery of
company holding the shares or its controlling
prudent and reasonable economic costs
stockholders are already listed in the Philippine
incurred, or such other principles that will
Stock Exchange (PSE): Provided, That
promote efficiency as may be determined by
controlling stockholders of small distribution
the ERC.
utilities are required to list in the PSE within
Every distribution utility shall identify and five (5) years from the enactment of this Act if
segregate in its bills to end-users the they already own the stocks. New controlling
components of the distribution retail supply stockholders shall undertake such listing within
rate, as defined in this Act. five (5) years from the time they acquire
ownership and control. A small distribution
Section 26. Distribution Related Businesses. - company is one whose peak demand is One
Distribution utilities may, directly or indirectly, hundred megawatts (100MW) or less.
engage in any related business undertaking
which maximizes the utilization of their assets: The ERC shall, within sixty (60) days from the
Provided, That a portion of the net income effectivity of this Act, promulgate the rules and
derived from such undertaking utilizing assets regulations to implement and effect this
which form part of the rate base shall be used provision.
to reduce its distribution retail wheeling
Section 29. Supply Sector. - The supply of
charges as determined by the ERC: Provided,
electricity to the contestable market shall
further, That such portion of net income used to
require a license from the ERC, except for
reduce their distribution retail wheeling charges
distribution utilities and electric cooperatives
shall not exceed fifty percent (50%) of the net
with respect to their existing franchise areas.
income derived from such undertaking:
Provided, finally, That separate accounts are For this purpose, the ERC shall
maintained for each business undertaking to promulgate rules and regulations
ensure that the distribution business shall prescribing the qualifications of
neither subsidize in any way such business electricity suppliers which shall include,
undertaking nor encumber its distribution among other requirements, a
assets in any way to support such business. demonstration of their technical
capability, financial capability, and
Section 27. Franchising Power in the Electric
creditworthiness: Provided, That the
Power Sector. - The power to grant franchises
ERC shall have authority to require
to persons engaged in the transmission and
electricity suppliers to furnish a bond or
distribution of electricity shall be vested
other evidence of the ability of a supplier
exclusively in the Congress of the Philippines
to withstand market disturbances or
and all laws inconsistent with this Act
other events that may increase the cost
particularly, but not limited to, Section 43 of PD
of providing service.
269, otherwise known as the "National
Electrification Decree," are hereby deemed Any law to the contrary notwithstanding,
repealed or modified accordingly: Provided, supply of electricity to the contestable
That all existing franchises shall be allowed to market shall not be considered a public
their full term: Provided, further, That in the utility operation. For this purpose, any
case of electric cooperatives, renewals and person or entity which shall engage in
cancellations shall remain with the National the supply of electricity to the
Electricity Commission under the National contestable market shall not be required
Electrification Administration for five (5) more to secure a local or national franchise.
years after the enactment of this Act.
The prices to be charged by suppliers
Section 28. De-monopolization and for the supply of electricity to the
Shareholding Dispersal. - In compliance with contestable market shall not be subject
the constitutional mandate for dispersal of to regulation by the ERC.
 Electricity suppliers shall be subject to The wholesale electricity spot market
the rules and regulations concerning shall be implemented by a market
abuse of market power, cartelization, operator in accordance with the
and other anti-competitive or wholesale electricity spot market rules.
discriminatory behavior to be The market operator shall be an
promulgated by the ERC. autonomous group, to be constituted by
DOE, with equitable representation from
In its billings to end-users, every
electric power industry participants,
supplier shall identify and segregate the
initially under the administrative
components of its supply charge, as
supervision of the TRANSCO. The
defined herein.
market operator shall undertake the
Section 30. Wholesale Electricity Spot preparatory work and initial operation of
Market. - Within one (1) year from the the wholesale electricity spot market.
effectivity of this Act, the DOE shall establish a Not later than one (1) year after the
wholesale electricity spot market composed of implementation of the wholesale
the wholesale electricity spot market electricity spot market, an independent
participants. The market shall provide the entity shall be formed and the functions,
mechanism for identifying and setting the price assets and liabilities of the market
of actual variations from the quantities operator shall be transferred to such
transacted under contracts between sellers entity with the joint endorsement of the
and purchasers of electricity. DOE and the electric power industry
participants. Thereafter, the
Jointly with the electric power industry administrative supervision of the
participants, the DOE shall formulate the TRANSCO over such entity shall cease.
detailed rules for the wholesale
electricity spot market. Said rules shall Subject to the compliance with the
provide the mechanism for determining membership criteria, all generating
the price of electricity not covered by companies, distribution utilities,
bilateral contracts between sellers and suppliers, bulk consumers/end-users
purchasers of electricity users. The price and other similar entities authorized by
determination methodology contained in the ERC shall be eligible to become
said rules shall be subject to the members of the wholesale electricity
approval of ERC. Said rules shall also spot market.
reflect accepted economic principles
The ERC may authorize other similar
and provide a level playing field to all
entities to become eligible as members
electric power industry participants. The
of the wholesale electricity spot market
rules shall provide, among others,
either directly or indirectly. All generating
procedures for:
companies, distribution utilities,
(a) Establishing the merit order dispatch suppliers, bulk consumers/end-users
instructions for each time period; and other similar entities authorized by
the ERC, whether direct or indirect
(b) Determining the market-clearing members of the wholesale electricity
price for each time period; spot market, shall be bound by the
(c) Administering the market including wholesale electricity spot market rules
criteria for admission to and termination with respect to transactions in that
from the market which includes security market. NEA may, in exchange for
or performance bond requirements, adequate security and a guarantee fee,
voting rights of the participants, act as a guarantor for purchases of
surveillance and assurance of electricity in the wholesale electricity
compliance of the participants with the spot market by any electric cooperative
rules and the formation of the wholesale or small distribution utility to support
electricity spot market governing body; their credit standing consistent with the
provisions hereof. For this purpose, the
(d) Prescribing guidelines for the market authorized capital stock of NEA is
operation in system emergencies; and hereby increased to Ten billion pesos
(e) Amending the rules. (P10,000,000,000.00).
 All electric cooperatives which have determine a threshold level when open
outstanding uncollected billings to any access shall apply to all distribution
local government unit shall report such utilities.
billings to NEA which shall, in turn,
In the case of electric cooperatives,
report the same to the Department of
retail competition and open access shall
Budget and Management (DBM) for
be implemented not earlier than five (5)
collection pursuant to Executive Order
years upon the effectivity of this Act.
190 issued on December 21, 1999.
Section 32. NPC Stranded Debt and Contract
The cost of administering and operating
Cost Recovery. - Stranded debt of NPC shall
the wholesale electricity spot market
refer to any unpaid financial obligations of NPC
shall be recovered by the market
which have not been liquidated by the
operator through a charge applied to all
proceeds from sales and privatization of NPC
market members: Provided, That such
assets.
charge shall be filed with and approved
by the ERC. Stranded contract costs of NPC shall
refer to the excess of the contracted
In cases of national and international
cost of electricity under eligible IPP
security emergencies or natural
contracts of NPC over the actual selling
calamities, the ERC is hereby
price of such contracts in the market.
empowered to suspend the operation of
Such contracts shall have been
the wholesale electricity spot market or
accredited by the DOE or NPC and
declare a temporary wholesale
approved by the ERB as of the
electricity spot market failure.
effectivity of this Act.
Section 31. Retail Competition and Open
The national government shall, in
Access. - Retail competition and open access
exchange for the equivalent amount of
on distribution wires shall be implemented not
the equity of NPC, directly assume a
later than three (3) years upon the effectivity of
portion of the financial obligations of
this Act subject to compliance with the
NPC in an amount not to exceed Two
following conditions precedent:
Hundred Billion Pesos
(a) Establishment of the wholesale (P200,000,000,000.00). For this
electricity spot market; purpose, the capital stock of NPC shall
be increased to Three hundred billion
(b) Approval of unbundled transmission
pesos (P300,000,000,000.00) common
and distribution retail wheeling charges;
shares which shall be divided into Three
(c) Initial implementation of the cross billion (3,000,000,000.00) shares with a
subsidy removal scheme; and par value of One hundred pesos
(P100.00) per share.
(d) Privatization of at least 70% of the
total capacity of generating assets of The ERC shall verify the reasonable
NPC and of the total capacity of the amounts and determine the manner and
power plants under contract with NPC in duration for the full recovery of stranded
Luzon and Visayas. Upon the initial debt and stranded contract costs as
implementation of open access, the defined herein: Provided, That the
ERC shall allow all electricity end-users duration for such recovery shall not be
located in Luzon with a maximum shorter than fifteen (15) years nor longer
demand of at least two megawatts than twenty-five (25) years. The ERC
(2MW) to be the contestable market. For shall, at the end of the first year of the
the Visayas and Mindanao areas, the implementation of stranded cost
initial threshold level shall be one and a recovery and every year thereafter,
quarter megawatts (1.25MW). However, conduct a review to determine whether
the ERC shall, on January 1, 2004, there is under-recovery or over-recovery
reduce the maximum demand for the and adjust (true-up) the level of
contestable market in Luzon to one stranded cost recovery charge
megawatt (1MW) for at least two (2) accordingly.
years and Seven hundred fifty kilowatts
(750kW) for the Visayas and Mindanao
areas. Thereafter, the ERC shall
 The NPC and PSALM shall have the shorter than fifteen (15) years nor longer
duty to mitigate all potential stranded than twenty-five (25) years. The ERC
contract costs of NPC. shall, at the end of the first year of the
implementation of stranded cost
Section 33. Distribution Utilities Stranded
recovery and every year thereafter,
Contract Costs Recovery. - Stranded contract
conduct a review to determine whether
costs of distribution utilities shall refer to the
there is under-recovery or over recovery
excess of the contracted cost of electricity
and adjust (true-up) the level of
under eligible contracts of such utilities over
stranded cost recovery charge
the actual selling price of such contracts in the
accordingly.
market. Such contracts shall have been
accredited by the DOE or NPC and approved Section 34. Universal Charge. - Within one (1)
by the ERB as of the effectivity of this Act. year from the effectivity of this Act, a universal
charge to be determined, fixed and approved
Within one (1) year from the start of
by the ERC, shall be imposed on all electricity
open access, any distribution utility that
end-users for the following purposes:
intends to seek recovery of stranded
contract costs shall file notice of such (a) Payment for the stranded debts and
intent with the ERC together with an stranded contract costs of NPC and
estimate of such obligations, including qualified distribution utilities resulting
the present value thereof and such other from the restructuring of the industry;
supporting data as may be required by
(b) Missionary electrification;
the ERC. Any distribution utility that
does not file within the date specified (c) The equalization of the taxes and
shall not be eligible for such recovery. royalties applied to indigenous or
renewable sources of energy vis-à-vis
Any distribution utility which opts to
imported energy fuels;
recover stranded cost shall have a duty
to mitigate its potential stranded contract (d) An environmental charge equivalent
costs by making reasonable best efforts to one-fourth of one centavo per
to: kilowatt-hour (P0.0025/kWh), which
shall accrue to an environmental fund to
(a) reduce the costs of its existing
be used solely for watershed
contracts with IPPs; and
rehabilitation and management. Said
(b) submit to an annual earnings review fund shall be managed by NPC under
by the ERC and use its earnings above existing arrangements; and
its authorized rate of return to reduce
(e) A charge to account for all forms of
the book value of contracts until the end
cross-subsidies for a period not
of the stranded cost recovery period.
exceeding three (3) years.
Other mitigating measures which are
The universal charge shall be a non-
reasonably known and generally
bypassable charge which shall be
accepted within the electric power
passed on and collected from all end-
industry shall be utilized. The ERC shall
users on a monthly basis by the
not require the distribution utility to take
distribution utilities. Collections by the
a loss to reduce stranded contract costs
distribution utilities and the TRANSCO in
or divest assets, unless the divestiture is
any given month shall be remitted to the
imposed as a penalty as provided
PSALM Corp. on or before the fifteenth
herein.
(15th) of the succeeding month, net of
The relevant distribution utility shall any amount due to the distribution utility.
submit to the ERC quarterly reports Any end-user or self-generating entity
showing the amount of stranded costs not connected to a distribution utility
recovered and the balance remaining to shall remit its corresponding universal
be recovered. The ERC shall verify the charge directly to the TRANSCO.
reasonable amounts and determine the
The PSALM Corp., as administrator of
manner and duration for the full
the fund, shall create a Special Trust
recovery of stranded contract costs as
Fund which shall be disbursed only for
defined herein: Provided, That the
the purposes specified herein in an
duration for such recovery shall not be
 open and transparent manner. All rates in accordance with the sectors as
amounts collected for the universal identified in Section 5 hereof. The ERC
charge shall be distributed to the shall ensure full compliance with this
respective beneficiaries within a provision.
reasonable period to be provided by the
CHAPTER III
ERC.
ROLE OF THE DEPARTMENT OF ENERGY
Section 35. Royalties, Returns and Tax Rates
Section 37. Powers and Functions of the
for Indigenous Energy Resources. - The
DOE. - In addition to its existing powers and
provision of Section 79 of Commonwealth Act
functions, the DOE is hereby mandated to
No. 137 (C.A. No. 137) and any law to the
supervise the restructuring of the electricity
contrary notwithstanding, the royalties, returns
industry. In pursuance thereof, Section 5 of R.
and taxes collected for the exploitation of all
A. 7638 otherwise known as "The Department
indigenous sources of energy, including but not
of Energy Act of 1992" is hereby amended to
limited to, natural gas and geothermal steam,
read as follows:
shall be adjusted so as to effect parity of tax
treatment with the existing rates for imported (a) Formulate policies for the planning
coal, crude oil, bunker fuel and other imported and implementation of a comprehensive
fuels. program for the efficient supply and
economical use of energy consistent
To ensure that the adjustment of tax rates and
with the approved national economic
royalties shall result in lower rates for end-
plan and with the policies on
users, the Department of Finance shall, within
environmental protection and
sixty (60) days from the effectivity of this Act,
conservation and maintenance of
issue the rules and regulations thereof.
ecological balance, and provide a
Consistent with this objective, the ERC shall
mechanism for the integration,
forthwith revise the rates of power from all
rationalization, and coordination of the
indigenous sources of energy.
various energy programs of the
Section 36. Unbundling of Rates and Government
Functions. - Within six (6) months from the
(b) Develop and update annually the
effectivity of this Act, NPC shall file with the
existing Philippine Energy Plan,
ERC its revised rates. The rates of NPC shall
hereinafter referred to as 'The Plan',
be unbundled between transmission and
which shall provide for an integrated and
generation rates and the rates shall reflect the
comprehensive exploration,
respective costs of providing each service.
development, utilization, distribution,
Inter-grid and intra-grid cross subsidies for both
and conservation of energy resources,
the transmission and the generation rates shall
with preferential bias for environment-
be removed in accordance with this Act.
friendly, indigenous, and low-cost
Within six (6) months from the effectivity sources of energy. The plan shall
of this Act, each distribution utility shall include a policy direction towards the
file its revised rates for the approval by privatization of government agencies
the ERC. The distribution retail wheeling related to energy, deregulation of the
charge shall be unbundled from the power and energy industry, and
distribution retail supply rate and the reduction of dependency on oil-fired
rates shall reflect the respective costs of plants. Said Plan shall be submitted to
providing each service. For both the Congress not later than the fifteenth day
distribution retail wheeling and supply of September every year thereafter;
charges, inter-class subsidies shall be
(c) Prepare and update annually a
removed in accordance with this Act.
Power Development Program (PDP)
Within six (6) months from the date of and integrate the same into the
submission of revised rates by NPC and Philippine Energy Plan. The PDP shall
each distribution utility, the ERC shall consider and integrate the individual or
notify the entities of their approval. joint development plans of the
transmission, generation, and
Any electric power industry participant
distribution sectors of the power
shall functionally and structurally
industry, which are submitted to the
unbundle its business activities and
Department: Provided, however, That
the ERC shall have exclusive authority (i) Develop policies and procedures and,
covering the Grid Code and the as appropriate, promote a system of
pertinent rules and regulations it may energy development incentives to
issue; enable and encourage electric power
industry participants to provide
(d) Ensure the reliability, quality and
adequate capacity to meet demand
security of supply of electric power;
including, among others, reserve
(e) Following the restructuring of the requirements;
electricity sector, the DOE shall, among
(j) Monitor private sector activities
others:
relative to energy projects in order to
(i) Encourage private sector attain the goals of the restructuring,
investments in the electricity privatization, and modernization of the
sector and promote development power sector as provided for under
of indigenous and renewable existing laws: Provided, That the
energy sources; Department shall endeavor to provide
for an environment conducive to free
(ii) Facilitate and encourage and active private sector participation
reforms in the structure and and investment in all energy activities;
operations of distribution utilities
for greater efficiency and lower (k) Assess the requirements of,
costs; determine priorities for, provide direction
to, and disseminate information resulting
(iii) In consultation with other from energy research and development
government agencies, promote a programs for the optimal development of
system of incentives to various forms of energy production and
encourage industry participants, utilization technologies; (l) Formulate
including new generating and implement programs, including a
companies and end-users to system of providing incentives and
provide adequate and reliable penalties, for the judicious and efficient
electric supply; and use of energy in all energy-consuming
(iv) Undertake, in coordination sectors of the economy;
with the ERC, NPC, NEA and the (m) Formulate and implement a program
Philippine Information Agency for the accelerated development of non-
(PIA), information campaign to conventional energy systems and the
educate the public on the promotion and commercialization of its
restructuring of the electricity applications;
sector and privatization of NPC
assets; (n) Devise ways and means of giving
direct benefit to the province, city, or
(f) Jointly with the electric power municipality, especially the community
industry participants, establish the and people affected, and equitable
wholesale electricity spot market and preferential benefit to the region that
formulate the detailed rules governing hosts the energy resource and/or the
the operations thereof; energy-generating facility: Provided,
(g) Establish and administer programs however, That the other provinces,
for the exploration, transportation, cities, municipalities, or regions shall not
marketing, distribution, utilization, be deprived of their energy
conservation, stockpiling, and storage of requirements;
energy resources of all forms, whether (o) Encourage private enterprises
conventional or non-conventional; engaged in energy projects, including
(h) Exercise supervision and control corporations, cooperatives, and similar
over all government activities relative to collective organizations, to broaden the
energy projects in order to attain the base of their ownership and thereby
goals embodied in Section 2 of RA encourage the widest public ownership
7638; of energy-oriented corporations;
 (p) Formulate such rules and regulations (7) years, two (2) members shall hold
as may be necessary to implement the office for five (5) years and the other two
objectives of this Act; and (2) members shall hold office for three
(3) years: Provided, further, That
(q) Exercise such other powers as may
appointment to any future vacancy shall
be necessary or incidental to attain the
only be for the unexpired term of the
objectives of this Act."
predecessor: Provided, finally, That
CHAPTER IV there shall be no reappointment and in
REGULATION OF THE ELECTRIC POWER no case shall any member serve for
INDUSTRY more than seven (7) years in the
Commission.
Section 38. Creation of the Energy Regulatory
Commission. - There is hereby created an The Chairman and Members of the
independent, quasi-judicial regulatory body to Commission shall assume office at the
be named the Energy Regulatory Commission beginning of their terms: Provided, That,
(ERC). For this purpose, the existing Energy if upon the effectivity of this Act, the
Regulatory Board (ERB) created under Commission has not been constituted
Executive Order No. 172, as amended, is and the new staffing pattern and plantilla
hereby abolished. positions have not been approved and
filled-up, the current Board and existing
The Commission shall be composed of personnel of ERB shall continue to hold
a Chairman and four (4) members to be office.
appointed by the President of the
Philippines. The Chairman and the The existing personnel of the ERB, if
members of the Commission shall be qualified, shall be given preference in
natural-born citizens and residents of the filling up of plantilla positions created
the Philippines, persons of good moral in the ERC, subject to existing civil
character, at least thirty-five (35) years service rules and regulations. Members
of age, and of recognized competence of the Commission shall enjoy security
in any of the following fields: energy, of tenure and shall not be suspended or
law, economics, finance, commerce, or removed from office except for just
engineering, with at least three (3) years cause as specified by law.
actual and distinguished experience in
The Chairman and members of the
their respective fields of expertise:
Commission or any of their relatives
Provided, That out of the four (4)
within the fourth civil degree of
members of the Commission at least
consanguinity or affinity, legitimate or
one (1) shall be a member of the
common law, shall be prohibited from
Philippine Bar with at least ten (10)
holding any interest whatsoever, either
years experience in the active practice
as investor, stockholder, officer or
of law, and one (1) shall be a certified
director, in any company or entity
public accountant with at least ten (10)
engaged in the business of transmitting,
years experience in active practice.
generating, supplying or distributing any
Within three (3) months from the form of energy and must, therefore,
creation of ERC, the Chairman shall divest through sale or legal disposition
submit for approval of the President of of any and all interests in the energy
the Philippines the new organizational sector upon assumption of office.
structure and plantilla positions
The presence of at least three (3)
necessary to carry out the powers and
members of the Commission shall
functions of the ERC.
constitute a quorum and the majority
The Chairman of the Commission who vote of two (2) members in a meeting
shall be a member of the Philippine Bar where a quorum is present shall be
shall act as the Chief Executive Officer necessary for the adoption of any rule,
of the Commission. ruling, order, resolution, decision or
other act of the Commission in the
All members of the Commission shall exercise of its quasi-judicial functions:
have a term of seven (7) years: Provided, That in fixing rates and tariffs
Provided, That for the first appointees, of transmission, and distribution retail
the Chairman shall hold office for seven
 wheeling charges and tariffs of franchise the existing budget of the ERB for the initial
electric utilities and all electric power operation of the ERC. Any balance shall initially
rates, an affirmative vote of three (3) be sourced from the Office of the President of
members shall be required. the Philippines. Thereafter, the annual budget
certified by the ERC, through its chairman, as
Section 39. Compensation and Other
necessary to defray its expenses shall be
Emoluments for ERC Personnel. - The
provided for in the regular or special
compensation and other emoluments for the
appropriations and shall be released
Chairman and members of the Commission
automatically and regularly.
and the ERC personnel shall be exempted
from the coverage of Republic Act No. 6758, Section 43. Functions of the ERC. - The ERC
otherwise known as the Salary Standardization shall promote competition, encourage market
Act. For this purpose, the schedule of development, ensure customer choice and
compensation of the ERC personnel, except discourage/penalize abuse of market power in
for the initial salaries and compensation of the the restructured electricity industry. Towards
Chairman and members of the Commission, this end, it shall be responsible for the following
shall be submitted for approval by the key functions in the restructured industry:
President of the Philippines. The new schedule
(a) Enforce the implementing rules and
of compensation shall be implemented within
regulations of this Act;
six (6) months from the effectivity of this Act
and may be upgraded by the President of the (b) Within six (6) months from the
Philippines as the need arises: Provided, That effectivity of this Act, promulgate and
in no case shall the rate be upgraded more enforce, in accordance with law, a
than once a year. National Grid Code and a Distribution
Code which shall include, but not limited
The Chairman and members of the
to, the following:
Commission shall initially be entitled to the
same salaries, allowances and benefits as (i) Performance standards for
those of the Presiding Justice and Associate TRANSCO O & M Concessionaire,
Justices of the Supreme Court, respectively. distribution utilities and suppliers:
The Chairman and the members of the Provided, That in the establishment of
Commission, upon completion of their term or the performance standards, the nature
upon becoming eligible for retirement under and function of the entities shall be
existing laws shall be entitled to the same considered; and
retirement benefits and privileges provided for
the Presiding Justice and Associate Justices of (c) (ii) In consultation with the DOE and
the Court of Appeals, respectively. DOF, financial capability standards for
the generating companies, the
Section 40. Enhancement of Technical TRANSCO, distribution utilities and
Competence. - The ERC shall establish suppliers: Provided, That in the
rigorous training programs for its staff for the formulation of the financial capability
purpose of enhancing the technical standards, the nature and function of the
competence of the ERC in the following areas: entity shall be considered: Provided,
evaluation of technical performance and further, That such standards are set to
monitor compliance with service and ensure that the electric power industry
performance standards, performance-based participants meet the minimum financial
rate-setting reform, environmental standards standards to protect the public interest.
and such other areas as will enable the ERC to Determine, fix, and approve, after due
adequately perform its duties and functions. notice and public hearings the universal
charge, to be imposed on all electricity
Section 41. Promotion of Consumer
end-users pursuant to Sections 34
Interests. - The ERC shall handle consumer
hereof;
complaints and ensure the adequate promotion
of consumer interests. (d) Enforce the rules and regulations
governing the operations of the
Section 42. Fiscal Autonomy of the ERC. -
electricity spot market and the activities
The ERC shall enjoy fiscal autonomy, subject
of the spot market operator and other
to regular audits by the Commission on Audit.
participants in the spot market, for the
The amount of One hundred fifty million pesos
(PHP 150,000,000.00) is hereby allocated from
purpose of ensuring a greater supply appraisal company: Provided,
and rational pricing of electricity; however, That ERC may give an
exemption in case of unusual
(e) Determine the level of cross
devaluation: Provided, further,
subsidies in the existing retail rate until
That the ERC shall exert efforts
the same is removed pursuant to
to minimize price shocks in order
Section 73 hereof;
to protect the consumers;
(f) Amend or revoke the authority to
(ii) Interest expenses are not
operate of any person or entity which
allowable deductions from
fails to comply with the provisions
permissible return on rate base;
hereof, the IRR or any order or
resolution of the ERC, after due notice (iii) In determining eligible cost of
and hearing. In the event a divestment services that will be passed on to
is required, the ERC shall allow the the end-users, the ERC shall
affected party sufficient time to remedy establish minimum efficiency
the infraction or for an orderly disposal, performance standards for
but shall in no case exceed twelve (12) TRANSCO and distribution
months from the issuance of the order; utilities including systems losses,
interruption frequency rates, and
(g) In the public interest, establish and
collection efficiency;
enforce a methodology for setting
transmission and distribution wheeling (iv) Further, in determining rate
rates and retail rates for the captive base, TRANSCO or any
market of a distribution utility, taking into distribution utility shall not be
account all relevant considerations, allowed to include management
including the efficiency or inefficiency of inefficiencies like cost of project
the regulated entities. The rates must be delays not excused by force
such as to allow the recovery of just and majeure, penalties and related
reasonable costs and a reasonable interest during construction
return on rate base (RORB) to enable applicable to these unexcused
the entity to operate viably. The rate- delays; and
setting methodology so adopted and
(v) Any significant operating costs
applied must ensure a reasonable price
or project investments of
of electricity. The rates prescribed shall
TRANSCO and distribution
be non-discriminatory. To achieve this
utilities which shall become part
objective and to ensure the complete
of the rate base shall be subject
removal of cross subsidies, the cap on
to the verification of the ERC to
the recoverable rate of system losses
ensure that the contracting and
prescribed in Section 10 of Republic Act
procurement of the equipment,
No. 7832, is hereby amended and shall
assets and services have been
be replaced by caps which shall be
subjected to transparent and
determined by the ERC based on load
accepted industry procurement
density, sales mix, cost of service,
and purchasing practices to
delivery voltage and other technical
protect the public interest.
considerations it may promulgate. The
ERC shall determine such form of rate- (h) Three (3) years after the imposition
setting methodology, which shall of the universal charge, ensure that the
promote efficiency. In case the rate charges of the TRANSCO or any
setting methodology used is RORB, it distribution utility shall bear no cross
shall be subject to the following subsidies between grids, within grids, or
guidelines: between classes of customers, except
as provided herein;
(i) For purposes of determining
the rate base, TRANSCO or any (i) Review and approve any changes on
distribution utility may be allowed the terms and conditions of service of
to revalue its eligible assets not the TRANSCO or any distribution utility;
more than once every three (3)
years by an independent (j) Allow TRANSCO to charge user fees
for ancillary services to all electric power
industry participants or self-generating licenses or permits in appropriate cases,
entities connected to the grid. Such fees such as in cases of violations of the Grid
shall be fixed by the ERC after due Code, Distribution Code and other rules
notice and public hearing; and regulations issued by the ERC in
accordance with law;
(k) Set a lifeline rate for the marginalized
end-users; (r) Act on applications for cost recovery
and return on demand side
(l) Monitor and take remedial measures
management projects;
to penalize abuse of market power,
cartelization, and anti-competitive or (s) In the exercise of its investigative
discriminatory behavior by any electric and quasi-judicial powers, act on any
power industry participant; complaint by or against any participant
or player in the energy sector for
(m) Impose fines or penalties for any
violations of any laws, rules and
non-compliance with or breach of this
regulations governing the same,
Act, the IRR of this Act and the rules
including the rules on cross-ownership,
and regulations which it promulgates or
anti-competitive practices and other acts
administers;
of abuse of market positions by any
(n) Take any other action delegated to it participant or player in the energy
pursuant to this Act; sector, as may be provided by law, and
require any person or entity to submit
(o) Before the end of April of each year, any report or data relative to any
submit to the Office of the President of investigation or hearing conducted in
the Philippines and Congress, copy accordance with this Act;
furnished the DOE, an annual report
containing such matters or cases which (t) Inspect, on its own or through duly
have been filed before or referred to it authorized representatives, the
during the preceding year, the actions premises, books of accounts and
and proceedings undertaken and its records of any person or entity at any
decision or resolution in each case. The time, in the exercise of its quasi-judicial
ERC shall make copies of such reports power for purposes of determining the
available to any interested party upon existence of any anti-competitive
payment of a charge which reflects the behavior and/or market power abuse
printing costs. The ERC shall publish all and any violation of rules and
its decisions involving rates and anti- regulations issued by the ERC;
competitive cases in at least one (1)
(u) Perform such other regulatory
newspaper of general circulation, and/or
functions as are appropriate in order to
post electronically and circulate to all
ensure the successful restructuring and
interested electric power industry
modernization of the electric power
participants copies of its resolutions to
industry, such as, but not limited to, the
ensure fair and impartial treatment;
rules and guidelines under which
(p) Monitor the activities of the generation companies, distribution
generation and supply of the electric utilities which are not publicly listed shall
power industry with the end in view of offer and sell to the public a portion not
promoting free market competition and less than fifteen percent (15%) of their
ensuring that the allocation or pass common shares of stocks: Provided,
through of bulk purchase cost by however, That generation companies,
distributors is transparent, non- distribution utilities or their respective
discriminatory and that any existing holding companies that are already
subsidies shall be divided pro-rata listed in the PSE are deemed in
among all retail suppliers; compliance. For existing companies,
such public offering shall be
(q) Act on applications for or implemented not later than five (5) years
modifications of certificates of public from the effectivity of this Act. New
convenience and/or necessity, licenses companies shall implement their
or permits of franchised electric utilities respective public offerings not later than
in accordance with law and revoke,
review and modify such certificates,
 five (5) years from the issuance of their generation company, distribution utility
certificate of compliance. or supplier.
(v) The ERC shall have the original and To promote true market competition and
exclusive jurisdiction over all cases prevent harmful monopoly and market
contesting rates, fees, fines and power abuse, the ERC shall enforce the
penalties imposed by the ERC in the following safeguards:
exercise of the abovementioned powers,
(a) Starting not later than five (5) years
functions and responsibilities and over
from the approval of this Act and until
all cases involving disputes between
such time that the ERC has reduced the
and among participants or players in the
threshold level to one hundred kilowatts
energy sector. All notices of hearings to
(100kW), no company or related group
be conducted by the ERC for the
can own and operate or control and
purpose of fixing rates or fees shall be
operate more than forty percent (40%)
published at least twice for two
of the installed generating capacity of a
successive weeks in two (2)
grid and/or thirty percent (30%) of the
newspapers of nationwide circulation.
national installed capacity; and
Section 44. Transfer of Powers and
(b) Distribution utilities may enter into
Functions. - The powers and functions of the
bilateral power supply contracts subject
Energy Regulatory Board not inconsistent with
to review by ERC.
the provisions of this Act are hereby transferred
to the ERC. The foregoing transfer of powers For purposes of this Section, the grid
and functions shall include all applicable funds basis shall consist of three (3) separate
and appropriations, records, equipment, grids, namely Luzon, Visayas and
property and personnel as may be necessary. Mindanao. The ERC shall have the
authority to modify or amend this
Section 45. Cross Ownership, Market Power
definition of a grid when two or more of
Abuse And Anti-Competitive Behavior. - No
the three separate grids become
participant in the electricity industry may
sufficiently interconnected to constitute a
engage in any anti-competitive behavior
single grid or as conditions may
including, but not limited to, cross-
otherwise permit.
subsidization, price or market manipulation, or
other unfair trade practices detrimental to the Exceptions from these limitations shall
encouragement and protection of contestable be allowed for isolated grids that are not
markets. connected to the high voltage
transmission system. Except as
No generation company or distribution
otherwise provided for in this Section,
utility, or its respective subsidiary or
any restriction on ownership and/or
affiliate or stockholder or official of a
control between or within sectors of the
generation company or distribution
electricity industry may be imposed by
utility, or other entity engaged in
ERC only insofar as the enforcement of
generating and supplying electricity
the provisions of this Section is
specified by ERC shall be allowed to
concerned.
hold any interest, direct or indirect, in
TRANSCO or its concessionaire. The ERC shall, within one (1) year from
Likewise, the TRANSCO, or its the effectivity of this Act, promulgate
concessionaire or any of its rules and regulations to promote
stockholders or officials or any of their competition, encourage market
relatives within the fourth civil degree of development and customer choice and
consanguinity or affinity, shall not hold discourage/penalize abuse of market
any interest, whether direct or indirect, power, cartelization and any anti-
in any generation company or competitive or discriminatory behavior,
distribution utility. Except for in order to further the intent of this Act
government-appointed representatives, and protect the public interest. Such
no person who is an officer or director of rules and regulations shall define the
TRANSCO or its concessionaire shall following:
be an officer or director of any
 (a) the relevant markets for purposes of imprisonment of one year or two years
establishing abuse or misuse of or both at the discretion of the court.
monopoly or market position; This rule shall apply to the members of
the Board who knowingly or by neglect
(b) areas of isolated grids; and
allows the commission or omission
(c) the periodic reportorial requirements under the law.
of electric power industry participants as
If the offender is a government official or
may be necessary to enforce the
employee, he shall, in addition, be
provisions of this Section.
dismissed from the government service
The ERC shall, motu propio, monitor with prejudice to reinstatement and with
and penalize any market power abuse perpetual or temporary disqualification
or anti-competitive or discriminatory act from holding any elective or appointive
or behavior by any participant in the office.
electric power industry.
If the offender is an alien he may, in
Upon finding that a market participant addition to the penalties prescribed, be
has engaged in such act or behavior, deported without further proceedings
the ERC shall stop and redress the after service of sentence.
same. Such remedies shall, without
Any case which involves question of fact
limitation, include the imposition of price
shall be appealable to the Court of
controls, issuance of injunctions,
Appeals and those which involve
requirement of divestment or
question of law shall be directly
disgorgement of excess profits and
appealable to the Supreme Court. The
imposition of fines and penalties
administrative sanction that may be
pursuant to this Act.
imposed by the ERC shall be without
The ERC shall, within one (1) year from prejudice to the filing of a criminal
the effectivity of this Act, promulgate action, if warranted.
rules and regulations providing for a
To ensure compliance with this Act, the
complaint procedure that, without
penalty of prision correccional or a fine
limitation, provides the accused party
ranging from Five thousand pesos
with notice and an opportunity to be
(P5,000.00) to Five million pesos
heard.
(P5,000,000.00), or both, at the
Section 46. Fines and Penalties. - The fines discretion of the court, shall be imposed
and penalties that shall be imposed by the on any person, including but not limited
ERC for any violation of or non-compliance to the president, member of the Board,
with this Act or the IRR shall range from a Chief Executive Officer or Chief
minimum of Fifty thousand pesos (P50,000.00) Operating Officer of the corporation,
to a maximum of Fifty million pesos partnership, or any other entity involved,
(P50,000,000.00). found guilty of violating or refusing to
comply with any provision of this Act or
Any person who is found guilty of any of its IRR, other than those provided
the prohibited acts pursuant to Section herein.
45 hereof shall suffer the penalty of
prision mayor and a fine ranging from Any party to an administrative
Ten thousand pesos (P10,000.00) to Ten proceeding may, at any time, make an
million pesos (P10,000,000.00), or both, offer to the ERC, conditionally or
at the discretion of the court. otherwise for a consented decree,
voluntary compliance or desistance and
The members of the Board of Directors other settlement of the case. The offer
of the juridical companies participating and any or all of the ultimate facts upon
in or covered in the generation which the offer is based shall be
companies, the distribution utilities, the considered for settlement purposes only
TRANSCO or its concessionaire or and shall not be used as evidence
supplier who violate the provisions of against any party for any other purpose
this Act may be fined by an amount not and shall not constitute an admission by
exceeding double the amount of the party making the offer of any
damages caused by the offender or by violation of the laws, rules, regulations,
 orders and resolutions of the ERC, nor the generating assets of NPC, the
as a waiver to file any warranted following criteria shall be considered:
criminal actions. In addition, Congress,
(1) A sufficient scale of operations
upon recommendation of the DOE
and balance sheet strength to
and/or ERC, may revoke such franchise
promote the financial viability of
or privilege granted to the person or
the restructured units;
entity who violated the provisions of this
Act. (2) Broad geographical groupings
to ensure efficiency of operations
CHAPTER V
but without the formation of
PRIVATIZATION OF THE ASSETS OF THE
regional companies or
NATIONAL POWER CORPORATION
consolidation of market power;
Section 47. NPC Privatization. - Except for the
(3) Portfolio of plants to achieve
assets of SPUG, the generating assets, real
management and operational
estate, and other disposable assets as well as
synergy without dominating any
generation contracts of NPC shall be privatized
part of the market or of the load
in accordance with this Act. Within six (6)
curve; and
months from the effectivity of this Act, the
PSALM Corp. shall submit a plan for the (4) Such other factors as may be
endorsement by the Joint Congressional deemed beneficial to the best
Power Commission and the approval of the interest of the national
President of the Philippines, on the total government while ensuring
privatization of the generation assets, real attractiveness to potential
estate, other disposable assets as well as investors.
existing generation contracts of NPC and
thereafter, implement the same, in accordance (d) All generation assets and IPP
with the following guidelines, except as contracts shall be sold in an open and
provided for in paragraph (e) herein: transparent manner through public
bidding;
(a) The privatization value to the
national government of the NPC (e) The Agus and the Pulangui
generation assets, real estate, other complexes in Mindanao shall be
disposable assets as well as IPP excluded from among the generating
contracts shall be optimized; companies that will be initially privatized.
Their ownership shall be transferred to
(b) The participation by Filipino citizens the PSALM Corp. and both shall
and corporations in the purchase of continue to be operated by NPC. In
NPC assets shall be encouraged; case of privatization, said complexes
may be privatized not earlier than ten
In the case of foreign buyers at least
(10) years from the effectivity of this Act,
seventy-five percent (75%) of the funds
and, until privatized, shall not be subject
used to acquire NPC-generating assets
to Build-Operate-Transfer (B-O-T),
and generating contracts shall be
Build-Rehabilitate-Operate-Transfer (B-
inwardly remitted and registered with the
R-O-T) and other variations pursuant to
Bangko Sentral ng Pilipinas.
Republic Act No. 6957, as amended by
(c) The NPC plants, its related assets Republic Act No. 7718. The privatization
and assigned liabilities, if any, shall be of Agus and Pulangui complexes shall
grouped in a manner which shall be left to the discretion of PSALM Corp.
promote the viability of the resulting in consultation with Congress;
generating companies (gencos), ensure
(f) The steamfield assets and generating
economic efficiency, encourage
plants of each geothermal complex shall
competition, foster reasonable electricity
not be sold separately. They shall be
rates and create market appeal to
combined and each geothermal
optimize returns to the government from
complex shall be sold as one package
the sale and disposition of such assets
through public bidding. The geothermal
in a manner consistent with the
complexes covered by this requirement
objectives of this Act. In the grouping of
include, but not limited to, Tiwi-Makban,
 Leyte A and B (Tongonan), Palinpinon, obligations of the National Power Corporation
and Mt. Apo; arising from loans, issuances of bonds,
securities and other instruments of
(g) The ownership of the Caliraya-
indebtedness shall be transferred to and
Botokan-Kalayaan (CBK) pump storage
assumed by the PSALM Corp. within ninety
complex shall be transferred to the
(90) days from the approval of this Act.
PSALM Corporation and shall continue
to be operated by NPC; Section 50. Purpose and Objective, Domicile
and Term of Existence. - The principal purpose
(h) Not later than three (3) years from
of the Corporation is to manage the orderly
the effectivity of this Act, and in no case
sale, disposition, and privatization of NPC
later than the initial implementation of
generation assets, real estate and other
open access, at least seventy percent
disposable assets, and IPP contracts with the
(70%) of the total capacity of generating
objective of liquidating all NPC financial
assets of NPC and of the total capacity
obligations and stranded contract costs in an
of the power plants under contract with
optimal manner.
NPC located in Luzon and Visayas shall
have been privatized; and The Corporation shall have its principal office
and place of business within Metro Manila.
(i) NPC may generate and sell electricity
only from the undisposed generating The Corporation shall exist for a period of
assets and IPP contracts of PSALM twenty five (25) years from the effectivity of this
Corp.: Provided, That any unsold Act, unless otherwise provided by law, and all
capacity shall be privatized not later assets held by it, all moneys and properties
than eight (8) years from the effectivity belonging to it, and all its liabilities outstanding
of this Act. upon the expiration of its term of existence
shall revert to and be assumed by the National
Section 48. National Power Board of
Government.
Directors. - Upon the passage of this Act, the
provisions of R.A. 6395, otherwise known as Section 51. Powers. - The Corporation shall,
the NPC Charter, referring to the composition in the performance of its functions and for the
of the National Power Board of Directors, are attainment of its objective, have the following
hereby repealed and a new Board shall be powers:
immediately organized. The new Board shall
(a) To formulate and implement a
be composed of the Secretary of Finance as
program for the sale and privatization of
Chairman, with the following as members: the
the NPC assets and IPP contracts and
Secretary of Energy, the Secretary of Budget
the liquidation of NPC debts and
and Management, the Secretary of Agriculture,
stranded contract costs, such liquidation
the Director-General of the National Economic
to be completed within the Corporation's
and Development Authority, the Secretary of
term of existence;
Environment and Natural Resources, the
Secretary of Interior and Local Government, (b) To take title to and possession of,
the Secretary of the Department of Trade and administer and conserve the assets and
Industry, and the President of the National IPP contracts transferred to it; to sell or
Power Corporation. dispose of the same at such price and
under such terms and conditions as it
CHAPTER VI
may deem necessary or proper, subject
POWER SECTOR ASSETS AND LIABILITIES
to applicable laws, rules and
MANAGEMENT
regulations;
Section 49. Creation of Power Sector Assets
(c) To calculate the amount of the
and Liabilities Management Corporation. -
stranded debts and stranded contract
There is hereby created a government owned
costs of NPC which shall form the basis
and controlled corporation to be known as the
for ERC in the determination of the
"Power Sector Assets and Liabilities
universal charge;
Management Corporation", hereinafter referred
to as the "PSALM Corp.", which shall take (d) To liquidate the NPC stranded
ownership of all existing NPC generation contract costs utilizing proceeds from
assets, liabilities, IPP contracts, real estate and sales and other property contributed to
all other disposable assets. All outstanding
 it, including the proceeds from the to discharge its functions and responsibilities.
universal charge; The presence at a meeting of four (4) members
shall constitute a quorum, and the decision of
(e) To adopt rules and regulations as
the majority of three members present at a
may be necessary or proper for the
meeting where there is quorum shall be the
orderly conduct of its business or
decision of the Board of Directors.
operations;
Section 53. Powers of the President of
(f) To sue and be sued in its name;
PSALM Corp. - The President of PSALM Corp.
(g) To appoint or hire, transfer, remove shall be appointed by the President of the
and fix the compensation of its Philippines. In the absence of the Chairman,
personnel; Provided, however, That the the President shall preside over Board
Corporation shall hire its own personnel meetings. The PSALM Corp. President shall be
only if absolutely necessary, and as far the Chief Executive Officer of PSALM Corp.
as practicable, shall avail itself of the
The President of PSALM Corp. shall have the
services of personnel detailed from
following powers and duties:
other government agencies;
(a) To execute and administer the
(h) To own, hold, acquire, or lease real
policies and measures approved by the
and personal properties as may be
Board, and take responsibility for the
necessary or required in the discharge
efficient discharge of management
of its functions;
functions;
(i) To borrow money and incur such
(b) To oversee the preparation of the
liabilities, including the issuance of
budget of PSALM Corp.;
bonds, securities or other evidences of
indebtedness utilizing its assets as (c) To direct and supervise the operation
collateral and/or through the guarantees and internal administration of PSALM
of the National Government: Provided, Corp. and, for this purpose, may
however, That all such debts or delegate some or any of his
borrowings shall have been paid off administrative responsibilities and duties
before the end of its corporate life; to other officers of PSALM Corp;
(j) To restructure existing loans of NPC; (d) Subject to the guidelines and policies
set up by the Board, to appoint and fix
(k) To collect, administer, and apply
the number and compensation of
NPC's portion of the universal charge;
subordinate officials and employees of
(l) To relend to NPC successor gencos PSALM Corp; and for cause, to remove,
and TRANSCO such amounts on such suspend, or otherwise discipline any
terms and conditions which shall subordinate employee of PSALM Corp;
optimize the value and sale prices of
(e) To submit an annual report to the
said assets.
Board on the activities and
Section 52. Power Sector Assets and achievements of PSALM Corp. at the
Liabilities Management Corporation, Meetings, close of each fiscal year and upon
Quorum and Voting. - The Corporation shall be approval thereof, submit a copy to the
administered, and its powers and functions President of the Philippines and to such
exercised, by a Board of Directors which shall other agencies as may be required by
be composed of the Secretary of Finance as law;
the Chairman, the Secretary of Budget and
(f) To represent PSALM Corp. in all
Management, the Secretary of the Department
dealings and transactions with other
of Energy, the Director-General of the National
offices, agencies, and instrumentalities
Economic and Development Authority, the
of the Government and with all persons
Secretary of the Department of Justice, the
and other entities, private or public,
Secretary of the Department of Trade and
domestic or foreign; and
Industry and the Secretary of the Department
of Agriculture as ex-officio members thereof. (G) To exercise such other powers and
duties as may be vested in him by the
The Board of Directors shall meet regularly and
Board from time to time.
as frequently as may be necessary to enable it
Section 54. Exemption from the Salary the Corporation Code. Nothing contained in
Standardization Law. - The salaries and this Act shall deprive electric cooperatives of
benefits of employees in the PSALM Corp. any privilege or right granted to them under
shall be exempt from Republic Act No. 6758 existing laws, particularly those under the
and shall be fixed by the PSALM Corp. Board. provisions of Republic Acts No. 6938, 7160
and 8241
Section 55. Property of the PSALM Corp. -
The following funds, assets, contributions and Section 58. Additional Mandate of the National
other property shall constitute the property of Electrification Administration (NEA). - NEA
the PSALM Corp.: shall develop and implement programs:
(a) The generation assets, real estate, (a) To prepare electric cooperatives in
IPP contracts, other disposable assets operating and competing under the
of NPC, proceeds from the sale or deregulated electric market within five
disposition of such assets and the (5) years from the effectivity of this Act,
residual assets from B-O-T, R-O-T, and specifically in an environment of open
other variations thereof; access and retail wheeling
(b) Transfers from the national (b) To strengthen the technical capability
government; and financial viability of rural electric
cooperatives; and
(c) Proceeds from loans incurred to
restructure or refinance NPC's (c) To review and upgrade regulatory
transferred liabilities: Provided, however, policies with a view to enhancing the
That all borrowings shall be fully paid for viability of rural electric cooperatives as
by the end of the life of the PSALM electric utilities.
Corp.;
NEA shall continue to be under the
(d) Proceeds from the universal charge supervision of the DOE and shall
allocated for stranded contract costs exercise its functions under Presidential
and the stranded debts of NPC; Decree No. 269, as amended by
Presidential Decree No. 1645 insofar as
(e) Net profit of NPC;
they are consistent with this Act.
(f) Net profit of TRANSCO;
Section 59. Alternative Electric Service for
(g) Official assistance, grants, and Isolated Villages. - The provision of electric
donations from external sources; and service in remote and unviable villages that the
franchised utility is unable to service for any
(h) Other sources of funds as may be reason shall be opened to other qualified third
determined by PSALM Corp. necessary parties.
for the above-mentioned purposes.
Section 60. Debts of Electric Cooperatives. -
Section 56. Claims Against the PSALM Corp. - Upon the effectivity of this Act, all outstanding
The following shall constitute the claims financial obligations of electric cooperatives to
against the PSALM Corp.: NEA and other government agencies incurred
(a) NPC liabilities transferred to the for the purpose of financing the rural
PSALM Corp.; electrification program shall be assumed by the
PSALM Corp. The ERC shall ensure a
(b) Transfers from the national reduction in the rates of electric cooperatives
government; commensurate with the resulting savings due
(c) New loans; and to the removal of the amortization payments of
their loans. Within five (5) years from the
(d) NPC stranded contract costs. condonation of debt, any electric cooperative
CHAPTER VII which shall transfer ownership or control of its
PROMOTION OF RURAL ELECTRIFICATION assets, franchise or operations thereof shall
repay PSALM Corp. the total debts including
Section 57. Conversion of Electric accrued interests thereon.
Cooperatives. -Electric cooperatives are
hereby given the option to convert into either CHAPTER VIII
stock cooperative under the Cooperatives GENERAL PROVISIONS
Development Act or stock corporation under
Section 61. Reportorial Requirements. -The (h) Determine inherent weaknesses in
DOE shall take the necessary measures to the law and recommend necessary
ensure that the provisions of this Act are remedial legislation or executive
properly implemented, and shall submit to the measures; and
Power Commission a semi-annual report on
(i) Perform such other duties and
the implementation of this Act, which shall be
functions as may be necessary to attain
on or before the last week of April and October
its objectives.
of each year.
In furtherance hereof, the Power Commission
Section 62. Joint Congressional Power
is hereby empowered to require the DOE,
Commission. - Upon the effectivity of this Act, a
ERC, NEA, TRANSCO, generation companies,
congressional commission, hereinafter referred
distribution utilities, suppliers and other electric
to as the Power Commission, is hereby
power industry participants to submit reports
constituted. The Power Commission shall be
and all pertinent data and information relating
composed of fourteen (14) members WITH the
to the performance of their respective functions
chairmen of the Committee on Energy of the
in the industry. Any person who willfully and
Senate and the House of Representatives and
deliberately refuses without just cause to
six (6) additional members from each House,
extend the support and assistance required by
to be designated by the Senate President and
the Power Commission to effectively attain its
the Speaker of the House of Representatives,
objectives shall, upon conviction, be punished
respectively. The minority shall be entitled to
by imprisonment of not less than one (1) year
pro-rata representation but shall have at least
but not more than six (6) years or a fine of not
one (1) representative in the Power
less than Fifty thousand pesos (P50,000.00)
Commission.
but not more than Five hundred thousand
The Commission shall, in aid of legislation, pesos (P500,000.00) or both at the discretion
perform the following functions, among others: of the court.
(a) Set the guidelines and overall The Power Commission shall adopt its internal
framework to monitor and ensure the rules of procedures; conduct hearings and
proper implementation of this Act; receive testimonies, reports and technical
advice; invite or summon by subpoena ad
(b) Approve genco groupings, IPP
testificandum any public official, private citizen
groupings, and sequencing of sale of
or any other person to testify before it, or
gencos;
require any person by subpoena duces tecum
(c) Endorse the privatization plan to produce before it such records, reports,
prepared by PSALM for approval of the documents or other materials as it may require;
President of the Philippines; and generally require all the powers necessary
to attain the purposes for which it is created.
(d) To ensure transparency, require the The Power Commission shall be assisted by a
submission of reports from government secretariat to be composed of personnel who
agencies concerned on the conduct of may be seconded from the Senate and the
public bidding procedures regarding House of Representatives and may retain
privatization of NPC generating and consultants. The secretariat shall be headed by
transmission assets before any final an executive director who has sufficient
award is made; background and competence on the policies
(e) Review and evaluate the and issues relating to electricity industry
performance of the industry participants reforms as provided in this Act. To carry out its
in relation to the objectives and powers and functions, the initial sum of twenty-
timelines set forth in this Act; five million pesos (P25,000,000.00) shall be
charged against the current appropriations of
(f) Approve the budget for the programs the Senate. Thereafter, such amount
of the Power Commission and all necessary for its continued operation shall be
disbursements therefrom, including included in the annual General Appropriations
compensation of all personnel; Act.
(g) Submit periodic reports to the The Power Commission shall exist for period of
President of the Philippines and ten (10) years from the effectivity of this Act
Congress;
and may be extended by a joint concurrent Chapter II, Sections 289 to 294 of the Local
resolution. Government Code and Section 5(i) of Republic
Act No. 7638 and their implementing rules and
Section 63. Separation Benefits of Officials
regulations and applicable orders and circulars
and Employees of Affected Agencies. -
consistent with this Act shall continue:
National government employees displaced or
Provided, further, That the obligations
separated from the service as a result of the
mandated under Chapter II, Section 291 of
restructuring of the electricity industry and
Republic Act No. 7160, shall apply to privately-
privatization of NPC assets pursuant to this
owned corporations or entities utilizing the
Act, shall be entitled to a separation pay and
national wealth of the locality.
other benefits in accordance with existing laws,
rules or regulations. Displaced or separated To ensure the effective implementation of the
personnel as a result of the privatization, if reduction in cost of electricity in the
qualified, shall be given preference in the hiring communities where the source of energy is
of the manpower requirements of the privatized located, the mechanics and procedures
companies. prescribed in the Department of the Interior
and Local Government (DILG)-DOE Circulars
All employees of NPC affected by the passage
No. 95-01 and 98-01 dated October 31, 1995
of this Act shall be entitled to avail of the
and September 30, 1998, respectively and
privileges provided under the NPC separation
other issuances related thereto shall be
plan existing as of January 1, 2001.
pursued.
The salaries of employees of NPC shall
Towards this end, the fund generated from the
continue to be exempt from the coverage of
eighty percent (80%) of the national wealth tax
Republic Act No. 6758, otherwise known as
shall, in no case, be used by any local
"The Salary Standardization Act".
government unit for any purpose other than
With respect to employees who are not those for which it was intended.
retained by NPC, the government, through the
In case of any violation or noncompliance by
Department of Labor and Employment, shall
any local government official of any provision
endeavor to implement re-training, job
thereof, the DILG shall, upon prior notice and
counseling, and job placement programs.
hearing, order the project operator, through the
Section 64. Fiscal Prudence - To promote the DOE, to withhold the remittance of the royalty
prudent management of government payment to the host community concerned
resources, the creation of new positions and pending completion of the investigation. The
the levels of or increases in salaries and all unremitted funds shall be deposited in a
other emoluments and benefits of TRANSCO government bank under a trust fund.
and PSALM Corp. personnel shall be subject
Section 67. NPC Offer of Transition Supply
to the approval of the President of the
Contracts. - Within six (6) months from the
Philippines. The compensation and all other
effectivity of this Act, NPC shall file with the
emoluments and benefits of the officials and
ERC for its approval a transition supply
members of the Board of TRANSCO and
contract duly negotiated with the distribution
PSALM Corp. shall be subject to the approval
utilities containing the terms and conditions of
of the President of the Phillippines.
supply and a corresponding schedule of rates,
Section 65. Environmental Protection. - consistent with the provisions hereof, including
Participants in the generation, distribution and adjustments and/or indexation formulas which
transmission sub-sectors of the industry shall shall apply to the term of such contracts. The
comply with all environmental laws, rules, term of the transition supply contracts shall not
regulations and standards promulgated by the extend beyond one year from the introduction
Department of Environment and Natural of open access. Such contracts shall be based
Resources including, in appropriate cases, the on the projected demand of such utilities less
establishment of an environmental guarantee any of their currently committed quantities
fund. under eligible IPP contracts as defined in
Section 33 hereof:
Section 66. Benefits to Host Communities. -
The obligations of generating companies and Provided, That the total generation capacity of
energy resource developers to communities such signed transition supply contracts shall
hosting energy generating facilities and/or not exceed the level of NPC owned, controlled
energy resource developers as defined under or committed capacity as of the effectivity of
this Act. Such transition supply contracts shall but not limited to the Palimpinon, Tongonan
be assignable to the NPC successor and Mt. Apo Geothermal complexes, shall be
generating companies. Within six (6) months reviewed by the ERC and the terms thereof
from the date of submission of the transition amended to remove any hidden costs or
supply contract by NPC, the ERC shall notify extraordinary mark-ups in the cost of power or
NPC of their approval of the rates contained steam above their true costs. All amended
therein. contracts shall be submitted to the Joint
Congressional Power Commission for
The ERC shall maintain a record of the
approval. The ERC shall ensure that all
contract terms and rates offered by NPC.
savings realized from the reduction of said
Likewise, the ERC shall update monthly, the
mark-ups shall be passed on to all end-users.
rates using the appropriate adjustment and/or
indexation formula. Notwithstanding the Section 70. Missionary Electrification. -
provisions of Section 25 hereof, the rates Notwithstanding the divestment and/or
charged by a distribution utility for the privatization of NPC assets, IPP contracts and
generation component of the supply of spun-off corporations, NPC shall remain as a
electricity in their distribution retail supply rate National Government-owned and -controlled
shall, for the term of the transition supply corporation to perform the missionary
contracts, not exceed the transition supply electrification function through the Small Power
contract rates, as updated monthly. The Utilities Group (SPUG) and shall be
recovery of costs incurred by a distribution responsible for providing power generation and
utility for any generation component in excess its associated power delivery systems in areas
of the transition supply contract rates shall be that are not connected to the transmission
disallowed by the ERC, except for eligible system. The missionary electrification function
contracts as defined under Section 33 hereof: shall be funded from the revenues from sales
Provided, That such limitation on the recovery in missionary areas and from the universal
of generation component costs by a distribution charge to be collected from all electricity end-
utility shall apply only to the equivalent quality users as determined by the ERC.
and quantity of electricity still available to the
Section 71. Electric Power Crisis Provision -
distribution utility from NPC.
Upon the determination by the President of the
Section 68. Power Supply Agreement. - It Philippines of an imminent shortage of the
shall be a condition of the privatization of NPC supply of electricity, Congress may authorize,
that PSALM Corp. shall diligently seek thhrough a joint resolution, the establishment
reasonable mitigating steps to correct onerous of additional generating capacity under such
provisions on its generating contracts, terms and conditions as it may approve.
guaranteed by government specially
Section 72. Mandated Rate Reduction. - Upon
independent power producers, where NPC is
the effectivity of this Act, residential end-users
experiencing substantial losses as a result of
shall be granted a rate reduction from NPC
excessive price, chronic underutilization,
rates of thirty centavos per kilowatt-hour
inappropriate fee structure, or buy-out
(P0.30/kWh). Such reduction shall be reflected
provisions that exceed levels needed for fair
as a separate item in the consumer billing
return on investment.
statement.
The NPC shall sell electricity only from
Section 73. Lifeline Rate. - A socialized pricing
undisposed generation assets and IPP
mechanism called a lifeline rate for the
contracts and shall not incur any new
marginalized end-users shall be set by the
obligations to purchase power through bilateral
ERC, which shall be exempted from the cross
contracts with generation companies or other
subsidy phase-out under this Act for a period
suppliers. NPC shall act as the administrator of
not exceeding ten (10) years, until or unless
IPP contracts.
expressly rescinded by law. The level of
Section 69. Renegotiation of Power Purchase consumption and the rate shall be determined
and Energy Conversion Agreements between by the ERC after due notice and hearing.
Government Entities. - Within three (3) months
Section 74. Cross Subsidies. - Cross
from the effectivity of this Act, all power
subsidies within a grid, between grids and/or
purchase and energy conversion agreements
classes of customers shall be phased out in a
between the PNOC-Energy Development
period not exceeding three (3) years from the
Corporation (PNOC-EDC) and NPC, including
establishment by the ERC of a universal
charge which shall be collected from all an order issued by the Supreme Court of the
electricity end-users. Such level of cross Philippines.
subsidies shall be made transparent and
Section 79. Separability Clause. - If for any
identified separately in the billing statements
reason, any provision of this Act is declared
provided to end-users by the suppliers or by
unconstitutional or invalid, the other parts or
the DOE as the case may be.
provisions hereof which are not affected
The ERC may extend the period for the thereby shall continue to be in full force and
removal of cross subsidies for a maximum effect.
period of one (1) year upon finding that
Section 80. Applicability and Repealing
cessation of such mechanism would have a
Clause. - The applicability provisions of
material adverse effect upon the public interest,
Commonwealth Act No. 146, as amended,
particularly the residential end-user; or would
otherwise known as the "Public Services Act";
have an immediate, irreparable, and adverse
Republic Act 6395, as amended, revising the
financial effect on distribution utility.
charter of NPC; Presidential Decree 269, as
CHAPTER IX amended, referred to as the NEA decree;
FINAL PROVISIONS Republic Act 7638, otherwise known as the
"Department of Energy Act of 1992"; Executive
Section 75. Statutory Construction. - This Act
Order 172, as amended, creating the ERB;
shall, unless the context indicates otherwise,
Republic Act 7832 otherwise known as the
be construed in favor of the establishment,
"Anti-Electricity and Electric Transmission
promotion, preservation of competition and
Lines/Materials Pilferage Act of 1994", shall
people empowerment so that the widest
continue to have full force and effect except in
participation of the people, whether direct or
so far as inconsistent with this Act.
indirect, is ensured.
Presidential Decree No. 40 and all laws,
Section 76. Education and Protection of End
decrees, rules and regulations, or portions
Users. - End users shall be educated about the
thereof, inconsistent with this Act are hereby
implementation of retail access and its impact
repealed or modified accordingly.
on end-users and on the proper use of electric
power. Such education shall include, but not Section 81. Effectivity Clause. - This Act shall
limited to, the existence of competitive take effect on the fifteenth day following its
electricity suppliers, choice of competitive publication in at least two (2) national papers of
electricity services, regulated transmission and general circulation.
distribution services, systems reliability,
Approved,
aggregation, market, itemized billing, stranded
cost, uniform disclosure requirements, low- AQUILINO Q. PIMENTEL, JR.
income bill payment, energy conservation and (President of the Senate)
safety measures. The DOE, in coordination
with the NPC, NEA, ERC and the Office of the FELICIANO BELMONTE, JR.
Press Secretary-Philippine Information Agency (Speaker of the House of Representatives)
(OPS-PIA), shall undertake an information This Act which is a consolidation of House Bill
campaign to educate the public on the No. 8457 and Senate Bills No. 1712, 1621,
restructuring of the electric power industry and 1943 and 2000 was finally passed by the
privatization of NPC. House of the Representatives and the Senate
Section 77. Implementing Rules and on May 31, 2001 and June 4, 2001,
Regulations. - The DOE shall, in consultation respectively.
with the electric power industry participants LUTGARDO B. BARBO
and end-users, promulgate the Implementing (Secretary of the Senate)
Rules and Regulations (IRR) of this Act within
six (6) months from the effectivity of this Act, ROBERTO P. NAZARENO
subject to the approval by the Power (Secretary General House of the
Commission. Representatives)

Section 78. Injunction and Restraining Order. - Approved:

The implementation of the provisions of this Act GLORIA MACAPAGAL-ARROYO
shall not be restrained or enjoined except by President of the Philippines