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RULES AND REGULATIONS TO IMPLEMENT
REPUBLIC ACT NO. 9136, ENTITLED
"ELECTRIC POWER INDUSTRY REFORM ACT OF 2001"

Pursuant to Sections 37 and 77 of Republic Act No. 9136, an Act Ordaining
Reforms in the Philippine Electric Power Industry, otherwise known as the
“Electric Power Industry Reform Act of 2001” (Act), the Department of
Energy (DOE), in consultation with the appropriate government agencies
such as the Energy Regulatory Commission (ERC), Department of Finance
(DOF), National Electrification Administration (NEA), National Power
Corporation (NPC), Department of Trade and Industry (DTI), Department of
Justice (DOJ), Department of Budget and Management (DBM), Power Sector
Assets and Liabilities Management Corporation (PSALM), the Electric Power
Industry Participants, and with the approval of the Joint Congressional
Power Commission (Power Commission), hereby issues, adopts and
promulgates the following rules and regulations to implement the provisions
of the Act.

PART I - GENERAL PROVISIONS

The succeeding rules and regulations shall include the general provisions to
be followed in implementing the major structural reforms for the electric
power industry and the Privatization of the state-owned NPC.

RULE 1. TITLE AND SCOPE
Section 1. Title.

These rules and regulations shall be referred to as the "Implementing Rules
and Regulations of Republic Act No. 9136” (Rules) otherwise known as the
”Electric Power Industry Reform Act of 2001” (Act). "

Section 2. Scope.

These Rules are promulgated under the authority of the DOE to formulate,
in consultation with relevant government agencies, Electric Power Industry
Participants, non-government organizations, End-users and consumers,
such rules and regulations as may be necessary to implement the objectives
of the Act and pursuant to the exercise of such other powers as may be
necessary or incidental to attain the objectives of the Act. These Rules shall
govern the relation and responsibilities of Electric Power Industry
Participants and governmental authorities, including but not limited to: the
DOE, NPC, NEA, ERC, and PSALM.

RULE 2. DECLARATION OF POLICY

It is hereby declared the policy of the State:

(a) To ensure and accelerate the total electrification of the country;

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(b)

(c)

(d)

(e)

(f)

(g)

(h)

()

(k)

To ensure the quality, reliability, security and affordability of the
supply of electric power;

To ensure transparent and reasonable prices of electricity in a regime
of free and fair competition and full public accountability to achieve
greater operational and economic efficiency, promote consumer choice
and enhance the competitiveness of Philippine products in the global
market;

To enhance the inflow of private capital, participation in the attendant
risks, and broaden the ownership base of the power generation,
transmission and distribution sectors;

To ensure fair and non-discriminatory treatment of public and private
sector entities in the process of Restructuring the electric power
industry;

To protect the public interest as it is affected by the rates and services
of electric utilities and other providers of electric power;

To assure socially and environmentally compatible energy sources
and infrastructure;

To promote the utilization of indigenous and new and renewable
energy resources in power generation in order to reduce dependence
on imported energy;

To provide for an orderly and transparent Privatization of the assets
and liabilities of the NPC;

To establish a strong and purely independent regulatory body and
system to ensure consumer protection and enhance the competitive
operation of the electricity market; and

To encourage the efficient use of energy and other modalities of
Demand Side Management (DSM).

RULE 3. RESPONSIBILITIES OF THE DOE, ERC, NPC, NEA
AND PSALM

Section 1. Responsibilities of the DOE.

In addition to its existing powers and functions, the DOE shall supervise the
Restructuring of the electricity industry and perform the following functions:

(a)

(b)

Formulate policies for the planning and implementation of a
comprehensive program for the efficient supply and economical use of
energy consistent with the approved national economic plan and with
the policies on environmental protection and conservation and
maintenance of ecological balance, and provide a mechanism for the
integration, rationalization, and coordination of the various energy
programs of the Government;

Develop and update annually the existing Philippine Energy Plan,
hereinafter referred to as PEP, which shall provide for an integrated
and comprehensive exploration, development, utilization, distribution,
and conservation of energy resources, with preferential bias for
environment-friendly, indigenous, and low-cost sources of energy.

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(c)

(d)

(e)

(f)

(g)

The PEP shall include a policy direction towards the Privatization of
government agencies related to energy, deregulation of the power and
energy industry, and reduction of dependency on oil-fired plants.
Said PEP shall be submitted to Congress not later than the fifteenth
(15th) day of September and every year thereafter;

Prepare and update annually a Power Development Program (PDP)
and integrate the same into the PEP. The PDP shall consider and
integrate the individual or joint development plans of the
transmission, generation, and distribution sectors of the electric
power industry which are submitted to the DOE: Provided, however,
That the ERC shall have exclusive authority covering the Grid Code
and the Distribution Code; and the pertinent rules and regulations it
may issue. The DOE, following its approval of the Transmission
Development Plan (TDP) prepared by the National Transmission
Corporation (TRANSCO) or its Buyer or Concessionaire, shall integrate
the TDP with the annual development plans of Distribution Utilities
and NPC, and other relevant data as are available to DOE, which shall
be incorporated in the PEP;

Ensure the reliability, quality and security of supply of electric power;

Following the Restructuring of the electricity sector, the DOE shall,
among others:

(i) Encourage private sector investments in the electricity sector
and promote development of indigenous and Renewable Energy
Sources including small-scale renewable energy generating
sources;

(ii) Facilitate and encourage reforms in the structure and
operations of Distribution Utilities for greater efficiency and
lower costs;

(iii) In consultation with other government agencies, promote a
system of incentives to encourage Electric Power Industry
Participants, including new Generation Companies and End-
users, to provide adequate and reliable electric supply; and

(iv) Undertake, in coordination with the ERC, NPC, NEA and the
Philippine Information Agency (PIA), information campaigns to
educate the public on the Restructuring of the electricity sector
and Privatization of NPC assets;

Jointly with the Electric Power Industry Participants, establish the
Wholesale Electricity Spot Market (WESM) and formulate the detailed
rules governing the operations thereof;

Establish and administer programs for the _ exploration,
transportation, marketing, distribution, utilization, conservation,
stockpiling, and storage of energy resources of all forms, whether
conventional or non-conventional;

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(h)

(i)

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(0)

(p)

(q)

Exercise supervision and control over all government activities relative
to energy projects in order to attain the goals embodied in Section 2 of
Republic Act No. 7638;

Develop policies and procedures and, as appropriate, promote a
system of energy development incentives to enable and encourage
Electric Power Industry Participants to provide adequate capacity to
meet demand including, among others, reserve requirements;

Monitor private sector activities relative to energy projects in order to
attain the goals of the Restructuring, Privatization, and modernization
of the electric power sector as provided for under existing laws:
Provided, That the DOE shall endeavor to provide for an environment
conducive to free and active private sector participation and
investment in all energy activities;

Assess the requirements of, determine priorities for, provide direction
to, and disseminate information resulting from energy research and
development programs for the optimal development of various forms
of energy production and utilization technologies;

Formulate and implement programs, including a system of providing
incentives and penalties, for the judicious and efficient use of energy
in all energy-consuming sectors of the economy;

Formulate and implement a program for the accelerated development
of non-conventional energy systems and the promotion and
commercialization of its applications;

Devise ways and means of giving direct benefit to the province, city, or
municipality, especially the community and people affected, and
equitable preferential benefit to the region that hosts the energy
resource and/or the energy-generating facility: Provided, however,
That the other provinces, cities, municipalities, or regions shall not be
deprived of their energy requirements;

Encourage private enterprises engaged in energy projects, including
corporations, cooperatives, and similar collective organizations, to
broaden the base of their ownership and thereby encourage the widest
public ownership of energy-oriented corporations;

Formulate such rules and regulations as may be necessary to
implement the objectives of the Act;

As part of the reportorial requirements of the Act, the DOE shall
prepare and submit to the Power Commission a semi-annual report
on the status of the implementation of the Act on or before the last
week of April and October of each year. Towards this end, the DOE
may require reports or documents from the Electric Power Industry
Participants as necessary to facilitate compliance with this mandate
and subject to appropriate measures to preserve the confidentiality of
proprietary or commercially sensitive information; and

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(r)

Exercise such other powers as may be necessary or incidental to
attain the objectives of the Act.

Section 2. Responsibilities of the NPC.

(a)

(b)

(c)

(d)

Pursuant to Section 70 of the Act, notwithstanding the divestment
and/or Privatization of NPC assets, IPP contracts and spun-off
corporations, NPC shall remain as a National Government-owned and
-—controlled corporation to perform the missionary electrification
function through the Small Power Utilities Group (SPUG) and shall be
responsible for providing power generation and its associated power
delivery systems in areas that are not connected to the transmission
system. The missionary electrification function shall be funded from
the revenues from sales in missionary areas and from the Universal
Charge to be collected from all electricity End-users as determined by
the ERC.

Consistent with Section 34(d) of the Act, the NPC shall manage under
existing arrangements, an environmental charge equivalent to
PO.0025 per kilowatt-hour (kWh) sales, intended solely for the
rehabilitation and management of watersheds nationwide.

Pursuant to Section 47(f) of the Act, NPC shall continue to operate
Agus and Pulangui complexes, which shall be owned by PSALM.

Pursuant to Section 47(j) of the Act, NPC/PSALM may continue to
generate and sell electricity only from the undisposed generating
assets and IPP contracts of PSALM. NPC/PSALM shall not incur any
new obligations to purchase power through bilateral contracts with
Generation Companies or other Suppliers.

Section 3. Responsibilities of the NEA.

(a)

NEA shall continue to be under the supervision of the DOE and shall
exercise its functions under Presidential Decree No. 269, as amended
by Presidential Decree No. 1645 insofar as they are consistent with
the Act. To this end, NEA shall develop and implement programs:

(i) To prepare Electric Cooperatives (ECs) in operating and
competing under the deregulated electricity market within five
(5) years from the effectivity of the Act, specifically in an
environment of Open Access and retail wheeling and Retail
Competition;

(ii) To strengthen the technical capability and financial viability of
ECs, through the following activities:

(1) NEA may offer services to the ECs other than those
related to its lending functions, for a fee duly approved by
the NEA Board of Administrators; and

(2) NEA may consider hiring qualified external industry
management experts and shall provide their services to

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(b)

(c)

the ECs: Provided, That such services will not increase
Retail Rates.

(iii) To review and upgrade regulatory policies with a view to
enhancing the viability of the ECs as electric utilities.

NEA may, in exchange for adequate security and a guarantee fee, act
as a guarantor for purchases of electricity in the WESM by any EC or
small Distribution Utility to support their credit standing consistent
with the provisions of the Act. For this purpose, the authorized
capital stock of NEA is hereby increased to Fifteen Billion Pesos
(P15,000,000,000.00).

NEA shall submit the report of ECs on their outstanding uncollected
billings due from any local government unit (LGU) to the Department
of Budget and Management (DBM) pursuant to Executive Order (E.O.)
No. 190 issued on 21 December 1999. The DBM shall effect
withholding from the Internal Revenue Allotment (IRA) of the
concerned LGU: Provided, That there is a Memorandum of Agreement
(MOA) executed between the LGU and NEA: Provided, further, That the
uncollected billings are supported by a certification issued by the
Municipality/City or Provincial Treasurer.

Section 4. Responsibilities of the ERC.

(a)

(b)

(c)

(d)

(e)

Pursuant to Section 43 of the Act, the ERC shall have the
responsibility of promoting competition, encouraging market
development, ensuring customer choice, and penalizing abuse of
market power in the electric power industry.

Pursuant to Sections 43 and 45 of the Act, the ERC shall promulgate
such rules and regulations as authorized thereby, including but not
limited to Competition Rules and limitations on recovery of system
losses, and shall impose fines or penalties for any non-compliance
with or breach of the Act, these Rules and the rules and regulations
which it promulgates or administers.

The ERC shall review and approve any plan for the expansion or
improvement of transmission facilities submitted by TRANSCO or its
Buyer or Concessionaire with due regard to the TDP.

To promote efficiency and non-discrimination, the ERC, after the
conduct of public hearings, shall determine, fix and approve
Transmission and Distribution Wheeling Charges, and Retail Rates
through an ERC established and enforced methodologies setting the
same. It shall fix and regulate the rates and charges to be imposed by
Distribution Utilities on their Captive Market as well as the Universal
Charge to be imposed on all electricity End-users including self-
generating entities.

Any application or petition for rate adjustment or for any relief
affecting the consumers must be verified, and accompanied with an
acknowledgement of receipt of a copy thereof by the LGU Legislative
Body of the locality where the applicant or petitioner principally

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(f)

(g)

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()

operates together with the certification of the notice of publication
thereof in a newspaper of general circulation in the same locality.

The ERC may grant provisionally or deny the relief prayed for not later
than seventy five (75) calendar days from the filing of the application
or petition, based on the same and the supporting documents
attached thereto and such comments or pleadings the consumers or
the LGU concerned may have filed within thirty (30) calendar days
from receipt of a copy of the application or petition or from the
publication thereof as the case may be.

Thereafter, the ERC shall conduct a formal hearing on the application
or petition, giving proper notices to all parties concerned, with at least
one public hearing in the affected locality, and shall decide the matter
on the merits not later than twelve (12) months from the issuance of
the aforementioned provisional order.

This Section 4(e) shall not apply to those applications or petitions
already filed as of 26 December 2001 in compliance with Section 36 of
the Act.

Amend or revoke, after due notice and hearing, the authority to
operate of any Person or entity which fails to comply with the
provisions of the Act, these Rules or any order or resolution of the
ERC. In the event a divestment is required, the ERC shall allow the
affected party sufficient time to remedy the infraction or for an orderly
disposal, but shall in no case exceed twelve (12) months from the
issuance of the order.

In order to facilitate the provision of an efficient, reliable and quality
service to End-users, the ERC shall promulgate a Grid Code and a
Distribution Code that shall include performance standards and the
minimum financial capability standards and other terms and
conditions for access to and use of the transmission and distribution
facilities within six (6) months from the effectivity of the Act.

Act on applications for cost recovery and return on DSM.

The ERC shall set the criteria for eligibility and authorize eligible
Generation Companies, Distribution Utilities, Suppliers, IPP
Administrators, End-users and other entities authorized by ERC in
accordance with the Act for membership in the WESM. For the
purposeof ensuring a greater supply and rational pricing of electricity,
the ERC shall enforce the rules and regulations governing the
operations of WESM and the activities of the WESM Operator and
other WESM Participants. In cases of national and international
security emergencies or natural calamities, it can suspend spot
market operations within the WESM.

The ERC shall ensure that Electric Power Industry Participants and
NPC functionally and structurally unbundle their respective business
activities and rates and determine the levels of cross subsidies in the
existing Retail Rates until the same is removed in accordance with the
sectors as identified in and as required by Sections 5, 36 and 74 of

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the Act. ERC shall set a Lifeline Rate for the Marginalized End-users.
In particular, the distribution rates should unbundle at least the
following business activities or assets: supply, distribution, and such
other services as the ERC may determine.

The ERC shall promulgate rules and regulations prescribing the
qualifications of Suppliers, which shall include among others their
technical and financial capability and credit worthiness.

The ERC shall determine the electricity End-users comprising the
Contestable and Captive Markets. The ERC shall also seek to foster
competition in credit, collection and metering services in Contestable
Markets. It shall likewise license Suppliers to Contestable Markets.

The ERC shall perform such other regulatory functions as are
appropriate and necessary in order to ensure the successful
Restructuring and modernization of the electric power industry, such
as, but not limited to, the rules and guidelines under which
Generation Companies, Distribution Utilities, which are not publicly
listed, shall offer and sell to the public a portion not less than fifteen
percent (15%) of their common shares of stocks: Provided, however,
That Generation Companies, Distribution Utilities or their respective
holding companies that are already listed in the Philippine Stock
Exchange (PSE) are deemed in compliance. For existing companies,
such public offering shall be implemented not later than five (5) years
from the effectivity of the Act. New companies shall implement their
respective public offerings not later than five (5) years from the
issuance of their Certificate of Compliance (COC);

The ERC shall have the original and exclusive jurisdiction over all
cases contesting rates, fees, fines and penalties imposed in the
exercise of its powers, functions and responsibilities and over all
cases involving disputes between and among participants or players
in the energy sector relating to the foregoing powers, functions and
responsibilities.

It shall also be empowered to issue such other rules that are essential
in the discharge of its functions as an independent quasi-judicial
body.

All actions taken by the ERC pursuant to the Act are subject to
judicial review and the requirements of due process and the cardinal
rights and principles applicable to quasi-judicial bodies.

The ERC may require reports or documents from the Electric Power
Industry Participants as necessary to facilitate compliance with the
Act, subject to appropriate measures to preserve the confidentiality of
proprietary or commercially sensitive information.

All notices of hearings to be conducted by the ERC for the purpose of

fixing rates or fees shall be published at least twice for two (2)
successive weeks in two (2) newspapers of nationwide circulation.

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(s)

The ERC shall conduct rate application hearings in the locality where
the applicant is conducting its operations: Provided, That this
requirement shall not apply to applications filed pursuant to Section
36 of the Act.

Section 5. Responsibilities of the PSALM.

(a)

(b)

(c)

Consistent with Section 49 of the Act, PSALM shall take ownership of
all existing NPC generation assets, liabilities, IPP contracts, real estate
and all other disposable assets. All outstanding obligations of NPC
arising from loans, issuances of bonds, securities and other
instruments of indebtedness shall be transferred to and assumed by
PSALM.

The PSALM shall formulate and implement a program for the sale and
Privatization of the NPC assets and IPP contracts and the liquidation
of NPC Debts and Stranded Contract Costs in accordance with the
Act.

It shall calculate the amount of the Stranded Debts and Stranded
Contract Costs of NPC, which amount shall form part of the Universal
Charge to be determined, fixed, and approved by the ERC.

Pursuant to Section 60 of the Act, the PSALM shall assume all
outstanding financial obligations of ECs to NEA and other government
agencies arising from their respective Rural Electrification Program.
This shall be done in accordance with the program duly approved by
the President of the Philippines.

RULE 4. DEFINITION OF TERMS

As used in these Rules, the following terms shall have the following
respective meanings:

(a)

(b)

(c)

(d)

“Act” unless otherwise stated, refers to, Republic Act No. 9136,
otherwise known as the “Electric Power Industry Reform Act of 2001”;

“Accredited Facility” refers to a facility granted the certificate of
accreditation by NPC or DOE pursuant to Executive Order No. 215
and its implementing rules and regulations;

“Affiliate” means any Person which, alone or together with any other
Person, directly or indirectly, through one or more intermediaries,
Controls, is Controlled by, or is under common Control with another
Person. Affiliates shall include a subsidiary company and parent
company and subsidiaries, directly or indirectly, of a common parent;

“Aggregator” refers to a Person or entity duly licensed by the ERC to
engage in consolidating electric power demand of End-users in a
Contestable Market for the purpose of purchasing and reselling
electricity on a group basis;

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(e)

(f)

(g)

(h)

(i)

(k)

(1)

(n)

(p)

“Ancillary Services’ refer to those services that are necessary to
support the transmission of capacity and energy from resources to
loads while maintaining reliable operation of the transmission system
in accordance with good utility practice and the Grid Code to be
adopted in accordance with the Act;

“Bureau of Internal Revenue” or “BIR” refers to an attached agency
of the Department of Finance (DOF);

“Board of Investments” or “BOI” refers to an attached agency of the
Department of Trade and Industry (DTI) created under Republic Act
No. 5186, as amended;

“Bonafide Member” refers to a Person that has met all the
requirements set forth under the applicable EC by-laws and has been
enlisted as such, with voting rights under the “one-man-one-vote”
cooperative principle;

“Build-Operate-Transfer” or “BOT” shall have the meaning specified
by Republic Act No. 6957, as amended, otherwise known as “BOT
Law” and its implementing rules and regulations;

“Buyer or Concessionaire’ refers to a qualified party awarded the
sale agreement or Concession Contract for transmission assets;

“Captive Market’ refers to electricity End-users who do not have the
choice of a Supplier of electricity, as may be determined by the ERC in
accordance with the Act;

“Central Dispatch’ refers to the process of issuing direct instructions
to Electric Power Industry Participants by the grid operator to achieve
the economic operation and maintenance of quality, stability,
reliability and security of the transmission system;

“Competition Rules” refer to the rules promulgated by ERC to
promote and ensure competition in the electric power industry
pursuant to the Act and these Rules;

“Concession Contract’ refers to the award by the government to a
qualified private entity of the responsibility for financing, operating,
expanding, maintaining and managing specific Government-owned
transmission assets;

“Condonation” refers to the setting aside or suspension from the ECs’
books of accounts of all their financial obligations to NEA and other
government agencies as a result of PSALM’s assumption of the same,
subject to their compliance with the Program approved by the
President of the Philippines;

“Contestable Market refers to the electricity End-users who have a

choice of a Supplier of electricity, as may be determined by the ERC in
accordance with the Act;

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(q)

(r)

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(t)

(u)

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(x)

(y)

(2)

(aa)

(bb)

(cc)

“Contiguous Area” refers to areas which are within the same
boundaries such as subdivisions, villages, Economic Zones, business
districts and other similarly situated End-users in which Supply of
Electricity can be measured through metering devices;

“Control” shall mean the power to direct or cause the direction of the
management policies of a Person by contract, agency or otherwise;

“Cooperative Development Authority” or “CDA” refers to an entity
created under Republic Act No. 6939;

“Corporation Code” refers to Batas Pambansa Bilang 68, otherwise
known as “The Corporation Code of the Philippines;”

“Demand Side Management’? or “DSM” refers to measures
undertaken by Distribution Utilities to encourage End-users in the
proper management of their load to achieve efficiency in the utilization
of fixed infrastructures in the system;

“Department of Budget and Management’ or “DBM” refers to the
government agency created pursuant to Executive Order No. 25, as
amended;

“Department of Energy” or “DOE” refers to the government agency
created pursuant to Republic Act No. 7638 whose expanded functions
are provided in the Act;

“Department of Finance” or “DOF” refers to the government agency
created pursuant to Executive Order No. 127, as amended;

“Distribution Code” refers to a compilation of rules and regulations
governing electric utilities in the operation and maintenance of their
Distribution Systems, which includes, among others, the standards
for service and performance, and defines and establishes the
relationship of Distribution Systems with facilities or installations of
parties connected thereto;

“Distribution of Electricity’ refers to the conveyance of electric
power from transmission facilities or Embedded Generators to End-
users by a Distribution Utility through its Distribution System
pursuant to the provisions of the Act and these Rules;

“Distribution System” refers to the system of wires and associated
facilities belonging to a franchised Distribution Utility extending
between the delivery points on the transmission or Subtransmission
System or generator connection and the point of connection to the
premises of the End-user;

“Distribution Wheeling Charge” refers to the cost or charge
regulated by the ERC for the use of a Distribution System and/or the

availment of related services;

“Distribution Utility’ refers to any EC, private corporation,
government-owned utility or existing local government unit which has

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an exclusive franchise to operate a Distribution System in accordance
with its franchise and the Act;

“Economic Zones” or “EZs” refer to selected areas which are being
developed into agro-industrial, industrial, tourist, recreational,
commercial, banking, investment and financial centers. An EZ may
refer to any of the following: Industrial Estates (IEs), Export
Processing Zones (EPZs), Free Trade Zones (FTZs), Information
Technology Parks and Tourist/Recreational Centers, such as those
managed, administered, or operated by the Bases Conversion
Development Authority (BCDA), Cagayan Economic Zone Authority
(CEZA), Clark Development Corporation (CDC), Philippine Economic
Zone Authority (PEZA), Phividec Industrial Authority (PIA), and
Zamboanga City Economic Zone Authority (ZCEZA);

“Electric Cooperative’ or “EC” refers to a Distribution Utility
organized pursuant to Presidential Decree No. 269, as amended or as
otherwise provided in the Act;

“Electric Power Industry Participant” refers to any Person or entity
engaged in the generation, transmission, distribution or Supply of
Electricity;

“Embedded Generators’ refer to generating units that are indirectly
connected to the Grid through the Distribution Utilities’ lines or
industrial generation facilities that are synchronized with the Grid;

“End-user” refers to any Person or entity requiring the supply and
delivery of electricity for its own use;

“Energized Area” refers to a geographical area enjoying dependable
and adequate electric service;

“Energy Regulatory Board” or “ERB” refers to the independent,
quasi-judicial regulatory body created under Executive Order No. 172,
as amended;

“Energy Regulatory Commission” or “ERC” refers to the regulatory
agency created by Section 38 of the Act;

“Financing for Rural Electrification” refers to those loans and
grants extended to ECs, for the construction or acquisition, operation
and maintenance of distribution, generation, and subtransmission
facilities for the purpose of supplying electric service, and those loans
for the restoration, upgrading and expansion of such facilities, in
areas which are considered rural at the time of the grant of such
loans;

“Franchise Area” refers to a geographical area exclusively assigned
or granted to a Distribution Utility for Distribution of Electricity;

“Generation Company’ refers to any Person or entity authorized by
the ERC to operate facilities used in the Generation of Electricity;

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“Generation Facility” refers to a facility for the production of
electricity;

“Generation of Electricity’ refers to the production of electricity by a
Generation Company or a co-generation facility pursuant to the
provisions of the Act;

“Grid” refers to the high voltage backbone system of interconnected
transmission lines, substations and related facilities, located in each
of Luzon, Visayas and Mindanao, or as may otherwise be determined
by the ERC in accordance with Section 45 of the Act;

“Grid Code” refers to the set of rules and regulations governing the
safe and reliable operation, maintenance and development of the high
voltage backbone transmission system and its related facilities;

“Independent Market Operator’ or “IMO” refers to a person who is
financially and technically capable, with proven experience and
expertise of not less than two (2) years as a leading independent
market operator of similar or larger size electricity markets endorsed
jointly by the DOE and Electric Power Industry Participants to
assume the functions, assets and liabilities from the Autonomous
Group Market Operator (AGMO), pursuant to Section 30 of the Act;

“Independent Power Producer’ or “IPP” refers to an existing power
generating entity which is not owned by NPC as of the effectivity of the
Act;

“Inter-Class Cross Subsidy’ refers to an amount charged by
Distribution Utilities to industrial and commercial End-users as well
as to other subsidizing customer sectors in order to reduce electricity
rates of other customer sectors such as the residential End-users,
hospitals, and streetlights;

“Inter-Regional Grid Cross Subsidy’ refers to an amount embedded
in the electricity rates of NPC charged to its customers located in a
viable regional grid in order to reduce the electricity rates in a less
viable regional grid;

“Intra-Regional Grid Cross Subsidy’ refers to an amount embedded
in the electricity rates of NPC charged to Distribution Utilities and
non-utilities with higher load factor and/or delivery voltage in order to
reduce the electricity rates charged to Distribution Utilities with lower
load factor and/or delivery voltage located in the same regional grid;

“IPP Administrator” refers to qualified independent entities
appointed by PSALM who shall administer, conserve and manage the
contracted energy output of NPC IPP contracts, including selling the
contracted energy output of these contracts and offering Ancillary
Services, where applicable;

‘Lifeline Rate” refers to the subsidized rate given to

Marginalized/low-income Captive Market End-users who cannot
afford to pay at full cost;

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(zz)

(aaa)

(bbb)

(ccc)

(ddd)

(eee)

(fff)

(ggg)

(hhh)

(iii)

Gil)

(kkk)

“Marginalized End-users’ refer to low-income, captive, household
electricity consumers who cannot afford to pay at full cost and have
levels of electricity consumption below a threshold level to be
determined by the ERC;

“Market Fees” refer to the charges imposed on all market members
by the Market Operator to cover the cost of administering and
operating the WESM, as approved by the ERC;

“Market Operator’ refers to either the “Autonomous Group Market
Operator” or “AGMO” constituted by the DOE under Section 30 of the
Act, with equitable representation from Electric Power Industry
Participants, initially under the administrative supervision of the
TRANSCO, which shall assume the functions, assets and liabilities of
the AGMO or the IMO, the entity jointly endorsed by the DOE and
Electric Power Industry Participants to assume the functions, assets
and liabilities from AGMO pursuant to Section 30 of the Act;

“Merit Order Dispatch Instructions” refer to the dispatch schedule
that will be submitted by the Market Operator to the Grid/system
operator for the purpose of providing Central Dispatch;

“Missionary Electrification” refers to the provision of basic
electricity service in Unviable Areas with the ultimate aim of bringing
the operations in these areas to viability levels;

“National Electrification Administration” or “NEA” refers to the
government agency created under Presidential Decree No. 269, as
amended, with additional mandate set forth in the Act;

“National Power Corporation” or “NPC” refers to the government
corporation created under Republic Act No. 6395, as amended;

“National Transmission Corporation” or “TRANSCO’ refers to the
corporation organized pursuant to the Act to acquire all the
transmission assets of the NPC;

“Open Access’ refers to the system of allowing any qualified Person
the use of transmission, and/or Distribution System and associated
facilities subject to the payment of transmission and/or distribution
retail wheeling rates duly approved by the ERC. For this purpose,
qualified Persons shall include all WESM Participants;

“Person” refers to a natural or juridical person, as the case may be;

“Philippine Energy Plan” or “PEP” refers to the overall energy
program formulated and updated yearly by the DOE and submitted to
Congress pursuant to Republic Act No. 7638;

“Philippine Stock Exchange’ or “PSE” refers to the corporate body
duly organized and existing under Philippine law, licensed to operate
as a securities exchange by the Securities and Exchange Commission
(SEC);

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=== ra-9136-irr-pages-015.ppm ===
(11)

"Power Commission” refers to the Joint Congressional Power
Commission created pursuant to Section 62 of the Act;

(mmm) “Power Development Program” or “PDP” refers to the

(nnn)

(000)

(ppp)

(qqq)

(rrr)

(sss)

(ttt)

(uuu)

indicative plan for managing electricity demand through energy-
efficient programs and for the upgrading, expansion, rehabilitation,
repair and maintenance of power generation and transmission
facilities, formulated and updated yearly by the DOE in coordination
with the generation, transmission and Distribution Utility companies;

“Power Sector Assets and Liabilities Management Corporation’ or
“PSALM Corp.” or “PSALM refers to the corporation created pursuant
to Section 49 of the Act;

“Privatization” refers to the sale, disposition, change and transfer of
entire ownership and control of all assets and IPP contracts from the
Government or a government corporation to a private Person or entity;

“Qualified Distribution Utilities’ refer to Distribution Utilities that
are technically and financially capable of owning, operating,
maintaining, upgrading and expanding subtransmission facilities in
accordance with the requirement of the Act;

“Referendum’ refers to an electoral process which Bonafide Members
of ECs register their respective vote on the issue of conversion,
through secret balloting, in designated voting centers, the conduct of
which shall be under the supervision of NEA;

“Related Group” refers to a Person and any business entity
Controlled by that Person, along with the Affiliates of such business
entity, and the directors and officers of the business entity or its
Affiliates, and relatives by consanguinity or affinity, legitimate or
common law, within the fourth civil degree, of the Person or any of the
foregoing directors or officers;

“Renewable Energy Resources’ refer to energy resources that do not
have an upper limit on the total quantity to be used. Such resources
are renewable on a regular basis and the renewable rate is rapid
enough to consider availability over an indefinite time. These include,
among others, biomass, solar, wind, hydro and ocean energy;

“Restructuring” refers to the process of reorganizing the electric
power industry in order to introduce higher efficiency, greater
innovation and End-user choice. It shall be understood as covering a
range of alternatives enhancing exposure of the industry to
competitive market forces;

“Retail Rate” refers to the total price paid by End-users consisting of
the charges for generation, transmission and related Ancillary
Services, distribution, supply and other related charges for electric
service;

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=== ra-9136-irr-pages-016.ppm ===
(vvv) “Retail Competition” refers to the provision of electricity to a
Contestable Market by Suppliers through Open Access;

(www) “Return-On-Rate-Base” or “RORB’ refers to the rate setting
methodology as determined by the ERC whereby TRANSCO or its
Buyer or Concessionaire and Distribution Utilities are allowed to
recover just and reasonable costs and earn a reasonable return so as
to enable such entities to operate viably;

(xxx) “Rural Electrification” refers to the delivery of basic electric
services, consisting of power generation, subtransmission and/or
extension of associated power delivery system that would bring about
important social and economic benefits to the countryside;

(vyy) “Rural Electrification Loan’ refers to financial obligations strictly
incurred for Rural Electrification;

(zzz) “Rural Electrification Program” refers to the National Government
plan to achieve total electrification of the countryside for the purpose
of fostering economic development and uplifting the living standards
of the Filipino people;

(aaaa) “Self-Generation Facility’ refers to a power Generation Facility
owned and constructed by an End-user for such End-user’s own
consumption or internal use excluding Generation Facilities for use
by households, clinics, hospitals and other medical facilities;

(bbbb) “Small Power Utilities Group” or “SPUG’ refers to the
functional unit of NPC created to pursue Missionary Electrification
function;

(cccc) “Small Distribution Company’ refers to a Distribution Utility whose
peak demand is equal to or less than ten (10) megawatts;

(dddd) “Stock Cooperative” refers to a duly-registered association of
Persons with a common bond of interest, who have voluntarily joined
together to achieve a lawful common social or economic end, making
equitable contributions to the capital required and accepting a fair
share of the risks and benefits of the undertaking in accordance with
the universally-accepted cooperative principles as defined under
Article 4, Chapter 1 of Republic Act No. 6938, otherwise known as the
“Cooperative Code of the Philippines;”

(eeee) “Stock Corporation” refers to an artificial being created by operation
of law with capital stock divided into shares and authorized to
distribute to its shareholders dividends out of its surplus profits,
having the right of succession and the powers, attributes and
properties expressly authorized by law or incident to its existence;

(ffff} “Stranded Contract Costs of Eligible Contracts of Distribution
Utilities’ refer to the excess of the contracted cost of electricity under
eligible contracts of Distribution Utilities over the actual selling price
of the contracted energy output of such contracts that would be
incurred upon Retail Competition and Open Access. For this purpose,

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=== ra-9136-irr-pages-017.ppm ===
“eligible contracts” are contracts which have been approved by the
ERB as of 31 December 2000;

(gggeg) “Stranded Contract Costs of NPC” refer to the excess of the
contracted cost of electricity under eligible contracts of NPC over the
actual selling price of the contracted energy output of such contracts
in the market. Such contracts shall have been approved by the ERB
as of 31 December 2000;

(hhhh) “Stranded Debts of NPC” or “Stranded Debts ” refer to any
unpaid financial obligations of NPC which have not been liquidated by
the proceeds from the sales and Privatization of NPC assets: Provided,
however, That such obligations include any of such obligations
refinanced by PSALM: Provided, further, That such refinancing of such
unpaid obligations shall not result in increasing the Universal Charge
burden;

(iii) “Subtransmission Assets’ refer to the facilities related to the power
delivery service below the transmission voltages and based on the
functional assignment of assets including, but not limited to step-
down transformers used solely by load customers, associated
switchyard/substation, control and protective equipment, reactive
compensation equipment to improve customer power factor, overhead
lines, and the land where such facilities/equipment are located.
These include NPC assets linking the transmission system and the
Distribution System which are neither classified as generation nor
transmission;

(jjjj) “Subtransmission System” refers to systems comprised of
Subtransmission Assets;

(kkkk) “Supplier” refers to any Person licensed by the ERC to sell,
broker, market or aggregate electricity to End-users;

(lll) “Supplier’s Charge’ refers to the charge imposed by Suppliers for the
sale of electricity to End-users, excluding the charges for generation,
transmission and distribution wheeling;

(mmmm) “Supply of Electricity’ refers to the sale of electricity by a
party other than a Generation Company or a Distribution Utility in
the Franchise Area of a Distribution Utility using the wires of such
Distribution Utility;

(nnnn) “Technical Constraints’ refer to line, equipment, and other
limitations as defined in the WESM Rules, Grid Code and Distribution
Code;

(0000) “Transmission Charge’ refers to the regulated cost or charges for the
use of a transmission system which may include the availment of
Ancillary Services;

(pppp) “Transmission Development Plan” or “TDP” refers to the

program for managing the transmission system through efficient
planning for its expansion, upgrading, rehabilitation, repair and

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=== ra-9136-irr-pages-018.ppm ===
maintenance, to be formulated by DOE and implemented by the
TRANSCO or its Buyer or Concessionaire pursuant to the Act;

(qqqq) “Transmission of Electricity” refers to the conveyance of electricity
through the high voltage backbone system;

(rrrr) “Universal Charge’ refers to the charge, if any, imposed for the
recovery of the Stranded Debts, Stranded Contract Costs of NPC, and
Stranded Contract Costs of Eligible Contracts of Distribution Utilities
and other purposes pursuant to Section 34 of the Act;

(ssss) “Unviable Area” refers to a geographical area within the Franchise
Area of a Distribution Utility where immediate extension of
distribution line is not feasible;

(tttt) “Wholesale Electricity Spot Market” or “WESM”’ refers to the
Wholesale Electricity Spot Market to be created in accordance with
the Act;

(uuuu) “WESM Participants” refer to all Generation Companies,
Distribution Utilities, Suppliers, Aggregators, End-users, the
TRANSCO or its Buyer or Concessionaire, IPP Administrators, and
other entities authorized by the ERC to participate in the WESM in
accordance with the Act; and

(vvvv) “WESM Rules’ refer to the detailed rules that govern the
administration and operation of the WESM.

PART II- STRUCTURE AND OPERATION OF THE ELECTRIC
POWER INDUSTRY

RULE 5. GENERATION SECTOR
Section 1. Guiding Principle.

Pursuant to Section 6 of the Act, generation of electric power, a business
affected with public interest, shall be competitive and open to all qualified
Generation Companies. Generation shall not be considered a public utility
operation. For this purpose, any Person engaged or intending to engage in
Generation of Electricity shall not be required to secure a national
franchise.

No Person may engage in the Generation of Electricity as a new Generation
Company unless such Person has received a COC from the ERC to operate
facilities used in the Generation of Electricity. A Person that demonstrates
compliance with the standards and requirements of this Rule 5, and such
other terms and conditions as determined by the ERC to be appropriate to
ensure that Persons comply with all applicable legal and regulatory
requirements, shall be issued a COC.

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=== ra-9136-irr-pages-019.ppm ===
Section 2. Scope of Application.

This Rule shall apply to all facilities used or to be used for the Generation of
Electricity, including but not limited to the following:

(a)

(b)

(c)

Existing Generation Facilities.

Existing Generation Facilities shall include:

(i)

(ii)
(iii)
(iv)

(v)

(vi)
(vii)
(viii)
(ix)

(x)

Spin-off Facilities of NPC or their transferees, including
Generation Facilities owned by NPC transferred to PSALM and
subsequently privatized pursuant to the Act;

Agus and Pulangui Complexes;

Facilities owned and operated by SPUG;

Accredited facilities under BOT arrangement and other variants
with NPC, SPUG, National Irrigation Administration (NIA),
Philippine National Oil Company-Energy Development
Corporation (PNOC-EDC) and other government agencies;
Accredited facilities under BOT arrangement and other variant
with Distribution Utilities;

Facilities Owned or Operated by a Distribution Utility;

Facilities under Contract with a Distribution Utility;
Self-Generation Facilities;

Facility operating in EZs; and

Facility operating in isolated areas.

Generation Facilities Under Construction.

Generation Facilities under construction shall include:

(i)

(ii)
(iii)
(iv)

(v)

(vi)

DOE-Accredited Facility under BOT arrangement and other
variants with NPC, SPUG, PNOC-EDC, NIA and_ other
government agencies;

DOE-Accredited Facility under BOT arrangement and other
variants with Distribution Utilities;

Non DOE-Accredited Facility under contract with Distribution
Utilities;

Self-Generation Facility;

Facility locating in EZs; and

Facility operating in isolated areas.

New Generation Facilities

New Generation Facilities shall include:

(i)
(ii)

(iii)

Any newly-constructed facility with appropriate health, safety
and environmental clearances connected to the Grid;

Any facility currently under BOT arrangement and other
variants with NPC, SPUG, PNOC-EDC, other government
agencies, and government- owned and- controlled corporations;
and

Any facility that shall operate in an isolated area.

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(d) This Rule shall also apply to the PSALM-appointed IPP
Administrators.

Section 3. Ownership Limitation.

No Generation Company, Distribution Utility, or its respective subsidiary or
Affiliate or stockholder or official of a Generation Company or Distribution
Utility, or other entity engaged in generating and supplying electricity
specified by ERC within the fourth civil degree of consanguinity or affinity,
legitimate or common law, shall be allowed to hold any interest, directly or
indirectly, in TRANSCO or its Buyer or Concessionaire. Likewise, the
TRANSCO or its Buyer or Concessionaire or any of its stockholders or
officials or any of their relatives within the fourth civil degree of
consanguinity or affinity, legitimate or common law, shall not hold any
interest, whether directly or indirectly, in any Generation Company or
Distribution Utility. Except for ex officio government-appointed
representatives, no Person who is an officer or director of the TRANSCO or
its Buyer or Concessionaire shall be an officer or director of any Generation
Company, Distribution Utility or Supplier. This section shall not apply to
PSALM during the period that its generation assets are being privatized
pursuant to Section 47 of the Act.

Section 4. Obligations of a Generation Company.

(a) A COC shall be secured from the ERC before commercial operation of
a new Generation Facility. The COC shall stipulate all obligations of a
Generation Company consistent with this Section and such other
operating guidelines as ERC may establish. The ERC shall establish
and publish the standards and requirements for issuance of a COC.
A COC shall be issued upon compliance with such standards and
requirements.

(i) A Person owning an existing Generation Facility or a Generation
Facility under construction, shall submit within ninety (90)
days from effectivity of these Rules to ERC, when applicable, a
certificate of DOE/NPC accreditation, a three (3) year
operational history, a general company profile and other
information that ERC may require. Upon making a complete
submission to the ERC, such Person shall be issued a COC by
the ERC to operate such existing Generation Facility.

(ii) | A Generation Facility which has been previously issued a COC
shall not be required to secure a COC even if acquired by a new
owner: Provided, That such new owner shall register with ERC
as specified above. Upon registration, such Person shall be
deemed authorized to operate such Generation Facility.

(b) A Generation Company shall comply with the following operating
standards:

(i) Technical Standards.

A Generation Company shall ensure that all its facilities
connected to the Grid meet the technical design and operational

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