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Facilities and/or energy resource development projects as defined under
Chapter I, Section 289 to 294 of the Republic Act No. 7160 (Local
Government Code) and Section 5 (i) of Republic Act No.7638 (DOE Law) and
their implementing rules and regulations shall continue: Provided, That the
obligations mandated under Chapter II, Section 291 of Local Government
Code, shall apply to privately-owned corporations or entities utilizing the
national wealth of the locality.

A. RULES FOR THE BENEFITS TO HOST COMMUNITIES PURSUANT
TO SECTION 5(i) OF REPUBLIC ACT 7638

Section 1. Scope of Application.

This Rule shall apply to Generation Facilities and/or energy resource

development projects located in all barangays, municipalities, cities,

provinces and regions.

Section 2. Obligation to Provide Financial Benefits.

The Generation Facilities and/or energy resource development facilities,

such as but not limited to the following, are required to provide the financial

benefits under Energy Regulations No. 1-94 (E.R. 1-94) of the DOE:

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

(b) Agus and Pulangui Complexes;

(c) Facilities owned and operated by NPC-SPUG;

(d) Facilities under BOT arrangement and other variants with NPC (NPC
IPPs), NPC-SPUG, NIA, PNOC-EDC and other government agencies;

(e) Facilities under BOT arrangement and other variant with Distribution
Utilities (IPPs of Distribution Utilities);

(f) Facilities owned or operated by a Distribution Utility;

(g) Self-Generation Facilities;
(h) Facilities operating in EZs; and
(i) Integrated energy resource development and Generation Facilities

such as hydro, geothermal and coal.
Section 3. Beneficiaries.
Direct benefits shall be provided to the host LGU, especially the community

and people affected while equitable preferential benefits shall be provided to
the host region. Host LGU or host region shall be understood as follows:

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(a)

(b)

With respect to Generation Facilities, in the case of power barges, the
host LGU or region is that where the power barge is moored; in all
other cases, the host LGU or region is that where the Generation
Facility is physically located. Generation Facilities shall not include
transmission lines and substations.

With respect to energy resources:

(i)

(ii)

(iii)

(iv)

Coal. The host LGU or region is that where the producing
positive coal reserve is located, as delineated by detailed
geophysical, geological and exploration surveys.

Geothermal. The host LGU or region is that where the
producing geothermal reservoir is located as delineated by
geochemical, geophysical, and exploration surveys. “Producing
geothermal reservoir” refers to the subsurface geological
environment where the geothermal fluids accumulate and
circulate, inclusive of the production and re-injection/recharge
zone.

Hydro. The host LGU or region is that where the hydro
reservoir is located as delineated by detailed topographic,
geological and geo-technical investigations, reservoir and dam
height optimization studies, and as delineated by detailed
ground surveys. “Hydro reservoir” refers to either a natural lake
or an artificial lake created by the impounding of stream flow,
runoff and subsurface water including but not limited to
intakes, diversion weirs and transbasin underground tunnel
which supplies water to a dam. It also refers to where river or
rivers supply/ies water to a dam reservoir through a transbasin
underground tunnel to generate power.

Petroleum/Natural Gas. The host LGU or region is that where
the producing petroleum/natural gas reservoir is located, as
delineated by detailed geochemical, geophysical exploration
surveys.

Section 4. Nature of Benefits Provided under E.R. 1-94.

(a)

The Generation Company and/or energy resource developer shall set
aside one centavo per kilowatt-hour (PR 0.01/kWh) of the total
electricity sales as financial benefit of the host communities of such
Generation Facility, where applicable.

(i)

For a Generation Facility and/or energy resource located in a
non-highly urbanized city, the PR 0.01/kWh financial benefit
shall be allocated as follows:

(1) Fifty percent of one centavo per kilowatt-hour (RP
0.005/kWh) of the total electricity sales shall be set aside
as an electrification fund (EF) to be applied in the
following radiating order:

(a) Designated resettlement area/s;

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(ii)

(2)

(3)

(b) Host barangay/s;

(c) Host municipality/ies or city/ies;

(d) Host province/s;

(e) Host region/s; and

(f) Other areas as may be prioritized/determined by
the DOE.

Twenty five percent of one centavo per kilowatt-hour (PR
0.0025/kWh) of the total electricity sales as a
development and livelihood fund (DLF) to be applied in
the following manner:

(a) Designated resettlement area/s - 5%
(b) Host barangay/s - 20%
(c) Host municipality/ies or city/ies - 35%
(d) Host province/s - 30%
(e) Host region/s - 10%

In the absence of a designated resettlement area/s, funds
allocated for the resettlement shall form part of the host
barangay/s.

Twenty five percent of one centavo per kilowatt-hour (RP
0.0025/kWh) of the total electricity sales as a
reforestation, watershed management, health and/or
environment enhancement fund (RWMHEEF) to be
allocated in the following manner:

(a) Designated resettlement area/s - 5%
(b) Host barangay/s - 20%
(c) Host municipality/ies or city/ies - 35%
(d) Host province/s - 30%
(e) Host region/s - 10%

In the absence of a designated resettlement area/s, funds
allocated for the resettlement shall form part of the host
barangay/s.

For a Generation Facility and/or energy resource located within
a highly urbanized city, the P 0.01/kWh financial benefit shall
be allocated as follows:

(1)

Seventy five percent of one centavo per kilowatt-hour (RP
0.0075/kWh) of the total electricity sales of all Generation
Facilities located in a highly urbanized city shall be set
aside into one account as an EF to be applied in the
following priority:

(a) Designated resettlement area/s;

(b) Host barangay/s;

(c) Host city/ies;

(d) Province/s nearest to the host city/ies;
(e) Region/s of the host city/ies;

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(b)

(iii)

(f) Host communities of other facilities with
insufficient electrification fund;

(g) Areas traversed by transmission lines and sub-
stations or similar facilities; and

(h) Other areas as may be prioritized/determined by
the DOE.

(2) Twelve and one-half percent of one centavo per kilowatt-
hour (P-0.00125) as a DLF to be allocated in the following

manner:
(a) Designated resettlement area/s - 10%
(b) Host barangay/s - 30%
(c) Host city/ies - 60%

In the absence of designated resettlement area/s, funds
allocated for the resettlement shall form part of the host
barangay/s.

(3) Twelve and one-half percent of one centavo per kilowatt-
hour (R-0.00125) as a RWMHEEFF to be allocated in the
following manner:

(a) Designated resettlement area/s - 10%
(b) Host barangay/s - 30%
(c) Host city/ies - 60%

In the absence of designated resettlement area/s, funds
allocated for the resettlement shall form part of the host
barangay/s.

In case of integrated hydroelectric generation projects with
cascading Generation Facilities, where the Generation Facilities
and energy resource are located in different
municipalities/cities or provinces, irrespective of its location,
whether located in a highly urbanized city or non-highly
urbanized city, allocation of financial benefits shall follow
Section 4(a)(i), hereof. The host communities of the Generation
Facilities and energy resource development projects shall
equally divide’ said financial _ benefits. The host
municipality/city of the Generation Facility adjacent to the
energy resource shall in no case be a host to both said
Generation Facility and energy resource.

All interest earnings from EF, DLF, RWMHEEF shall be set aside into
one trust account to be utilized for the electrification projects of the
communities in the following order of priority:

(i)

(ii)

Direct host barangay/s, and host municipality/ies or city/ies
with insufficient accrued EF;

Areas traversed by transmission lines, and sub-stations or
similar facilities;

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(iii) Areas not directly connected to the Grid or national
transmission system which include isolated or remote
communities; and

(iv) Other areas as may be prioritized/determined by the DOE.

(c) The financial assistance advanced by the Generation Company and
energy resource developer during its pre-operation stage or before the
start of the commercial operations for the purpose of securing
favorable endorsement from the community and people affected, after
Republic Act 7638 (DOE Law) has become effective or pursuant to this
Rule, shall be credited by the Generation Company, energy resource
developer or their successors-in-interest against the accrued financial
benefits based on the following criteria:

(i) The projects to be funded under the advance financial
assistance should be approved by the DOE consistent with E.R.
1-94.

(ii) |The total financial assistance to be amortized at a rate of twenty

percent (20%) from the accrued financial benefits shall be based
on the actual amount spent for the project/s validated by the
DOE.

(iii) Amortization of financial assistance shall commence from the
next quarter billing, after the DOE has issued a validated report
on the actual amount spent for the project/s.

Section 5. Establishment of Trust Accounts.

The DOE shall establish trust accounts specific for EF, DLF, RWMHEEF in
the name of the DOE and the Generation Facilities or Generation Company
and/or energy resource developer. For purposes of said establishment, the
Generation Company and/or energy resource developer shall submit a
report that contains the following data:

(a) Actual generation, station/own service use, system loss, and
electricity sales in kilowatt-hour;

(b) Accrued benefits due to the host LGU and host region derived from
Section 5(a) hereof;

(c) Details of benefits and/or financial assistance advanced to the host
LGU and host region, if any; and

(d) Such other information, which the DOE may deem necessary for
review and audit purposes.

Section 6. Project Implementation and Approval.
The evaluation and approval of project proposals/work programs endorsed
by the host LGU and host region through the Generation Company and/or

energy resource developer shall strictly be guided by the following
procedures:

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(a)

(b)

(c)

(d)

(e)

The Generation Company and/or energy resource developer, through
its designated Community Relations Officer (COMREL) shall assist the
host LGU and host region in the preparation of annual work
programs/project proposals qualified by the DOE to be implemented
in any given year. The amount of financial benefits accruing to the
pertinent funds in the immediate preceding year shall be used as
basis in the preparation of annual work programs/project proposals.
The said annual work programs/project proposals shall be submitted
by the Generation Company and/or energy resource developer to the
DOE not later than March 15 of every year.

All work programs/project proposals for DLF and RWMHEEF shall be
implemented within one (1) year upon receipt of funds. Said work
programs/project proposals shall be implemented, supervised and
administered by the concerned LGU.

The Generation Company and/or energy resource developer shall
review the work programs/project proposals on development,
livelihood, reforestation, watershed management, health and/or
environment enhancement duly endorsed by the host LGU and host
region through a resolution passed by its Sanggunian or Regional
Development Council. In the case of official resettlement area, work
programs/project proposals may be endorsed by the resettlement
organization, association or cooperative duly certified by the
Generation Company and/or energy resource developer and registered
under the concerned government agencies. The Generation Company
and/or energy resource developer shall make the appropriate
endorsement of annual work programs/project proposals to the DOE
for further review and approval. The review and approval of annual
work programs/project proposals shall be completed by DOE within
twenty (20) working days upon receipt of complete documentation.
Thereafter, project implementation shall proceed as prescribed under
Sub-section (f)(i), hereof.

For reforestation and watershed management projects, work
programs/project proposals should be coordinated and endorsed by
the DENR_ Regional Office or the watershed management
administrator in the area.

For electrification programs, the Generation Company and/or energy
resource developer shall coordinate with the concerned Distribution
Utility in the development of said program for the barangays
energization and prioritization in any given year. The annual
electrification programs shall be directly forwarded to DOE for review
and evaluation. The NEA shall assist the ECs in the preparation of
documents such as but not limited to the staking sheets or single line
diagrams and cost estimates. Thereafter, project implementation
shall proceed as prescribed under Sub-section (f)(ii), hereof. The
electrification projects may be undertaken by the Distribution Utility
or the Generation Company and/or energy resource developer or their
accredited contractors, herein referred to as project implementor.

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(f)

(g)

Upon submission of complete documents of the work
programs/project proposals, project implementation shall proceed in
any of the following manner:

(i) For development, livelihood, reforestation, watershed
management, health and/or environment enhancement
projects, a Memorandum of Agreement (MOA) shall be entered
into by and among the DOE, Generation Company and/or
energy resource developer, and the concerned LGU to effect
funds commitment and project implementation. The DOE shall
then make the necessary fund allocation and shall forthwith
release the project funds directly to the concerned host LGU or
host region within fifteen (15) days upon submission of
complete supporting documents pursuant to the provisions in
the MOA.

(ii) For electrification projects, a MOA shall be entered into by and
among the DOE, the concerned Distribution Utility/project
implementor, Generation Company and/or energy resource
developer to effect funds commitment and _ project
implementation. The DOE shall then make the necessary fund
allocation and shall forthwith release the funds to the
franchised Distribution Utility/project implementor within
fifteen (15) days upon submission of complete supporting
documents pursuant to the provisions in the MOA.

For projects to be undertaken by contract, initial release of fund
shall be equivalent to fifteen percent (15%) of the total approved
project cost. Subsequent release of fund balance shall be based
on the result of qualified lowest bid cost.

For projects to be undertaken by administration, total approved
project cost shall be released upon signing of the MOA.

All funds disbursements shall follow government accounting and
auditing rules and regulations.

Section 7. Administration of Trust Accounts.

(a)

(b)

The administration of EF, DLF, RWMHEEF shall be undertaken by
the DOE. All funds administered by NPC with regard to DLF and
RWMHEEF shall be transferred to DOE for administration within one
hundred twenty (120) days from the effectivity of these Rules.
Thereafter, all MOA entered into by DOE and NPC on the
establishment of trust accounts shall be amended to reflect transfer of
responsibilities to NPC-successors, transferees and/or assignees or
IPPs.

The obligation of the Generation Companies to DOE with regard to the
remittance of funds shall be settled in the following manner:

(i) For NPC-IPPs, if applicable, to settle all obligations before
issuance of COC/registration certificate by ERC.

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(ii) For NPC, if applicable, to settle all obligations before
Privatization/sale and transfer of IPP contracts to PSALM.

(iii) For IPPs of Distribution Utilities with an outstanding financial
obligation with the DOE pursuant to Department Circular No.
2000-03-03 shall settle its account within one (1) year upon
effectivity of these Rules.

(iv) After thorough investigation, non-remittance of the Generation
Company and/or energy resource developer of the financial
benefits due to the host communities shall be a ground for
DOE’s recommendation to ERC for appropriate action and
reasonable measures in accordance with ERC rules and
regulations.

Section 8. Audit of Financial Benefits and Project Monitoring.

(a)

(b)

The DOE shall review and audit the source of fund, particularly on
the total electricity sales of the Generation Facility to determine the
financial benefits due to the host LGUs and host regions.

The DOE shall conduct financial and technical audit to monitor
compliance by the LGU and region with regard to the implementation
of the projects. In the event of unjustified disbursement of fund and
non-completion or delay in the implementation of projects by the LGU
or region concerned and the Distribution Utility/project implementor,
the DOE shall defer the releases of funds and take appropriate
reasonable measures in accordance with any existing and future
government rules and regulations until such time that the LGU or
region and franchised Distribution Utility/project implementor would
be able to justify disbursement of funds to the satisfaction of the DOE
or deputized/resident auditor of the Commission on Audit (COA).

Section 9. Other Provisions.

(a)

(b)

The application of this Rule 27(A) shall take effect upon effectivity of
these Rules.

Any provision in E.R. 1-94, its amendments and other related
issuances and their amendments that are inconsistent with these
Rules are hereby superseded, modified or amended accordingly.

B. RULES FOR THE BENEFITS TO HOST COMMUNITIES PURSUANT TO

CHAPTER II, SECTIONS 289 TO 294 OF THE LOCAL GOVERNMENT
CODE

Section 1. Scope of Application.

The LGUs hosting the national wealth shall have an equitable share in the
proceeds derived from the utilization and development of national wealth,
including sharing the same with the inhabitants by way of direct benefits.

Section 2. Amount of Share of Local Government Units.

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Any government agency or government-owned or controlled corporation and
private corporation or entities engaged in the utilization and development of
the national wealth are required to provide share to the host LGUs, based
on the preceding fiscal year of the proceeds, based on the following formula,
whichever will produce a share higher for the LGU:

(a)

(b)

One percent (1%) of the gross sales or receipts of the preceding
calendar year; or

Forty percent (40%) of the national wealth taxes, royalties, fees or
charges derived by the government agency or government owned and
controlled corporation and privately-owned corporation or entities.

Section 3. Nature of Benefits.

(a)

Eighty percent (80%) of the proceeds shall be applied solely to lower
the cost of electricity either through subsidy or non-subsidy scheme
or combination of both.

(i)

(ii)

Non-subsidy scheme may take the form but not limited to
electrification, technical upgrading and _ rehabilitation of
distribution lines to reduce electricity losses, use of energy
saving devices, and support of the infrastructure facilities
servicing the needs of the public which can all redound to the
reduction of the electricity rate of the area.

Subsidy scheme will be directly utilized to subsidize cost of
power used by the consumers. This may be applied with or
without ceiling or at graduated rates (per kWh per level of
consumption) in the following form which the host LGU may
choose from.

(1) Subsidy per customer, an equal or predetermined level or
rate of subsidy per qualified customer:

(a) All consumer types;
(b) Residential consumer only; and
(c) Other preferred types of consumer combinations,

such as: commercial, industrial, public buildings,
irrigation/communal water system, streetlights,
etc.

(2) Subsidy of power consumption, which amount of subsidy
depends on the magnitude of power consumption of
qualified consumers:

(a) All consumer types;
(b) Residential consumer only; and
(c) Other preferred types of consumer combinations,

such as, commercial, industrial, public buildings,
irrigation/communal water system, streetlights,
etc.

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(b)

Twenty percent (20%) of the proceeds shall be utilized for the
development and livelihood projects which shall be appropriated by
their respective Sanggunian.

Section 4. Allocation of Shares.

The amount of share of the LGUs shall be distributed in the following
manner:

(a)

(b)

(c)

For energy resource located in the province, share shall be
appropriated as follows:

(i) Host barangay - 35%
(ii) Host component city/municipality - 45%
(iii) | Host province - 20%

For energy resource located in a highly urbanized or independent
component city, share shall be appropriated as follows:

(i) Host barangay - 35%
(ii) Host city - 65%

For energy resource located in two (2) or more provinces, or in two (2)
or more municipalities/cities or two (2) or more barangays, their
respective shares shall be appropriated on the basis of the following:

(i) population - seventy percent (70%); and
(ii) land area- thirty percent (30%)

Where the land area is the area of the host barangays found within
the technically delineated energy resource area and where the
population refers to the population of host barangays found wholly or
partially within the technically delineated energy resource.

Section 5. Monitoring.

(a)

The Department of Interior and Local Government (DILG) shall
monitor the compliance of host LGUs. To assist in the monitoring of
compliance, all host LGUs of energy projects are required to submit
the following:

(i) The scheme of electricity rate reduction adopted by the host
LGU (with proper documentation) based on the prescription in
the DILG-DOE Joint Circular 95-01 dated 31 October 1995 at
the start of the use of fund or upon the amendment of scheme
by the respective LGU councils; and

(ii) Summary of transactions thirty (30) days after end of each
quarter.

The DILG shall furnish the DOE the above information within fifteen
(15) days from the date of the reporting period.

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(b)

(c)

The COA shall conduct yearly audit of the national wealth proceeds
consistent with its responsibility to examine all accounts pertaining to
uses of funds and property owned or held in trust by the government
or any of its agencies as mandated under Section 2 of Presidential
Decree No. 1445 of 1976.

In the event of violation or non-compliance with the provisions of the
DILG-DOE Joint Circulars 95-01 and 98-01, and other relevant
issuances, the DILG may, upon prior notice and hearing, order the
project proponent the non-remittance of the royalty payment to the
host LGU concerned pending completion of the investigation of the
concerned LGU if the project proponent is a GOCC; or notify the DBM
regarding such violation and order the non-release of the LGU shares
if the project proponent is a private company. The unremitted funds
shall be deposited in a government bank under escrow.

RULE 30. NPC OFFER OF TRANSITION SUPPLY CONTRACTS

Section 1. Guiding Principle.

Pursuant to Section 67 of the Act, NPC shall, within six (6) months from the
effectivity of the Act, file with the ERC for its approval the transition supply
contracts (TSCs) duly negotiated with the Distribution Utilities.

Section 2. Scope of Application.

This Rule shall apply to all Distribution Utilities.

Section 3. Terms and Conditions of the TSCs.

(a)

(b)

(c)

(d)

(e)

(f)

The TSCs shall contain the terms and conditions of supply and a
corresponding schedule of rates, consistent with the provision of the
Act, including adjustments and/or indexation formulas which shall
apply during the term of such contracts.

The term of the TSCs shall not extend beyond one (1) year from the
introduction of Open Access.

Such contracts shall be based on the projected demand of the
Distribution Utilities less any of their currently committed quantities
under eligible contracts, if any, as defined in Section 33 of the Act.

The total generation capacity of such signed TSCs shall not exceed the
level of NPC owned, controlled, or committed capacity as of the
effectivity of the Act.

The TSCs shall be assignable to the NPC successor Generation
Companies.

Notwithstanding the provisions of Section 25 of the Act, the rates
charged by a Distribution Utility for the generation component of the
Supply of Electricity in the Retail Rate shall, for the term of the TSCs,
not exceed the TSC rates, as updated monthly.

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(g) The recovery of costs incurred by a Distribution Utility for any
generation component in excess of the TSC rates shall be disallowed
by the ERC except for eligible contracts and mandated purchases
from the WESM.

(h) The limitation on the recovery of generation component costs by a
Distribution Utility shall apply only to the equivalent quality and
quantity of electricity still available to the Distribution Utility from
NPC.

Section 4. TSCs Approval and Monitoring.

(a) | Within six (6) months from the date of submission of the TSC by the
NPC, the ERC shall notify NPC of their approval of the rates contained
therein.

(b) The ERC shall maintain a record of the contract terms and rates
offered by NPC.

(c) The ERC shall update monthly the rates using the appropriate
adjustment and/or indexation formula.

Section 5. Recovery of Generation Component by Distribution
Utility.

Notwithstanding the provisions of Section 25 of the Act, the rates charged
by a Distribution Utility for the generation component of the Supply of
Electricity in its Retail Rates shall, for the term of the TSC, not exceed the
generation component of the TSC rates, as updated monthly.

(a) Recovery of cost incurred by a Distribution Utility for any generation
component in excess of the TSC rates shall not be allowed, except for
eligible contracts approved by the ERC for the recovery of Stranded
Contract Costs of Eligible Contracts of Distribution Utilities as
provided in Section 33 of the Act and mandated purchases from the
WESM.

(b) The limitation on the recovery of generation component costs by a
Distribution Utility shall apply only to the equivalent quality and
quantity of electricity still available to the Distribution Utility from
NPC. For purposes of the determination of equivalent quality and
quantity of electricity, the ERC shall consider, among others, firm and
non-firm capacities, standards specified in the Grid and Distribution
Codes, and other similar criteria as may be determined by the ERC.

RULE 31. DEBTS OF ELECTRIC COOPERATIVES (ECs)
Section 1. Guiding Principle.
Pursuant to Section 60 of the Act, all outstanding financial obligations of

ECs to NEA and other government agencies incurred for the purpose of
financing the Rural Electrification Program shall be assumed by the PSALM

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in accordance with the program approved by the President of the
Philippines.

Section 2. Scope.

This Rule shall cover all outstanding financial obligations by the ECs to NEA
and other government agencies, incurred as of 26 June 2001 for the
purpose of financing the Rural Electrification Program.

Financial obligation shall refer to the indebtedness, whether through regular
or restructured loans, liabilities, or amounts payable by the ECs to NEA and
other government agencies as of 26 June 2001, to finance their rural
electrification projects, subject to the terms and conditions of duly-executed
loan and mortgage contracts between NEA and/or other government
agencies, as creditors and the ECs, as debtors/borrowers.

Section 3. Condonation of Debts of ECs.

From the effectivity of the Act, all outstanding financial obligations of ECs to
NEA and other government agencies incurred for the purpose of financing
the Rural Electrification Program shall be assumed by the PSALM in
accordance with the program approved by the President of the Philippines
within one (1) year from the effectivity of the Act which shall be implemented
and completed within three (3) years from the effectivity of the Act.

These debts shall include all outstanding financial obligations incurred by
the ECs for the purpose of financing the Rural Electrification Program,
exclusively utilized for capital expenditures for the acquisition or
construction, operation and maintenance, and/or expansion and
rehabilitation of distribution, generation and  Subtransmission
Assets/facilities and pre-operating expenses for newly-established ECs:
Provided, however, That such outstanding financial obligations shall include
interest, surcharges and penalties on ECs’ Rural Electrification Loans,
released from NEA and other government agencies to ECs as of 26 June
2001; duly booked by NEA, validated by COA, and confirmed by the ECs.

Section 4. Assumption of EC Loans by PSALM.

PSALM shall assume all outstanding financial obligations of the ECs to NEA
and other government agencies incurred for the purpose of financing the
Rural Electrification Program; such outstanding financial obligations of the
ECs involving “Rural Electrification Loans” shall be determined in
accordance with the program approved by the President of the Philippines.
Correspondingly, having assumed the ECs’ obligations, the PSALM shall
repay NEA and the other government agencies, in accordance with a
prescribed amortization schedule agreed between the parties.

The outstanding financial obligations from other government agencies
referred to in Section 60 of the Act shall include loans contracted from the
following:

(a) Development Bank of the Philippines (DBP);

(b) Land Bank of the Philippines (LBP);

(c) Asset Privatization Trust (APT) now Privatization and Management
Office (PMO);

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(d) NPC, for loans on taken-over systems, excluding power bills;
(e) DOE; and
(f) LGUs.

Provided, however, That such loans were contracted in accordance with NEA
policies and with prior NEA authorization, except for loans transferred to
APT, now PMO.

Section 5. Transfer of Ownership or Control of Assets, Franchise or
Operation.

Within five (5) years from the completed Condonation of debt, any EC which
shall transfer ownership or Control of its assets, franchise or operations
shall repay PSALM the total debts, including accrued interest thereon:
Provided, however, That the ECs may enter into loan or financing
agreements to allow flexibility in sourcing funds and improvement and
management system for needed rehabilitation and modernization programs:
Provided, further, That it does not involve permanent transfer or Control of
the assets, franchise and operations: Provided, finally, That DOF and NEA
shall jointly issue the necessary guidelines to protect the member-
consumers of the ECs involved.

Section 6. Reduction in ECs’ Rates.

The ERC shall ensure a reduction in the rates of ECs commensurate with
the resulting savings due to the removal of the amortization payments of
their loans and for this purpose, NEA shall assist the ECs in their rate
formulation consistent with the program approved by the President of the
Philippines.

Nothing in this Rule however, shall mean that ECs are not obliged to pay
the NEA with respect to all outstanding financial obligations assumed by
PSALM, if the amortization cost component of the EC’s tariff is still collected
from the consumers.

Section 7. Reporting, Accounting and Audit Procedures.

NEA shall have the responsibility for the accounting of all outstanding
financial obligations of ECs from NEA that will be assumed by PSALM.
Thereafter, NEA shall render reports and submit the same to PSALM.

PSALM shall have the right to conduct final audit of all the outstanding
financial obligations of ECs in accordance with existing accounting and
auditing rules and regulations, before the same can be considered for final
assumption. Likewise, PSALM shall submit annual progress reports to the
DOF on the status of ECs’ loans that were assumed and subsequently
condoned.

RULE 32. FISCAL PRUDENCE

(a) Pursuant to Section 64 of the Act, the creation of new positions and
the levels of or increases in salaries and all other emoluments and

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benefits of TRANSCO and PSALM personnel shall be subject to the
approval of the President of the Philippines.

(b) Likewise, the compensation and all other emoluments and benefits of
the officials and members of the Board of TRANSCO and PSALM shall
be subject to the approval of the President of the Philippines.

RULE 33. SEPARATION BENEFITS
Section 1. General Statement on Coverage.

This Rule shall apply to all employees in the National Government service as
of 26 June 2001 regardless of position, designation or status, who are
displaced or separated from the service as a result of the Restructuring of
the electricity industry and Privatization of NPC assets: Provided, however,
That the coverage for casual or contractual employees shall be limited to
those whose appointments were approved or attested by the Civil Service
Commission (CSC).

Section 2. Scope of Application .
This Rule shall apply to affected personnel of DOE, ERB, NEA and NPC.
Section 3. Separation and Other Benefits.

(a) The separation benefit shall consist of either a separation pay and
other benefits granted in accordance with existing laws, rules and
regulations or a separation plan equivalent to one and one half (1-2)
months’ salary for every year of service in the government, whichever
is higher: Provided, That the separated or displaced employee has
rendered at least one (1) year of service at the time of effectivity of the
Act.

(b) The following shall govern the application of Section 3(a) of this Rule:

(i) With respect to NPC officials and employees, they shall be
considered legally terminated and shall be entitled to the
benefits or separation pay provided in Section 3(a) herein when
the restructuring plan as approved by the NPC Board shall have
been implemented.

(ii) | With respect to NEA officials and employees, they shall be
considered legally terminated and shall be entitled to the
benefits or separation pay provided in Section 3(a) herein when
a restructuring of NEA is implemented pursuant to a law
enacted by Congress or pursuant to Section 5(a)(5) of
Presidential Decree No. 269.

(iii) With respect to the affected Bureaus of the DOE, their officials
and employees shall be considered legally terminated and shall
be entitled to the benefits or separation pay provided in Section
3(a) herein when the re-organizational plan shall have been

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implemented as a result of the Restructuring of the electric
power industry.

(c) The governing board or authority of the entities enumerated in
Section 3(b) hereof shall have the sole prerogative to hire the
separated employees as new employees who start their service anew
for such positions and for such compensation as may be determined
by such board or authority pursuant to its restructuring program.
Those who avail of the foregoing privileges shall start their
government service anew if absorbed by any government agency or
any government-owned successor company.

(d) In no case shall there be any diminution of benefits under the
separation plan until the full implementation of the Restructuring of
the electric power industry and the Privatization of NPC assets in
accordance with the approved Restructuring and Privatization
schedule.

(e) For this purpose, “Salary,” as a rule, refers to the basic pay including
the thirteenth (13th) month pay received by an employee pursuant to
his appointment, excluding per diems, bonuses, overtime pay,
honoraria, allowances and any other emoluments received in addition
to the basic pay under existing laws.

(f) Likewise, “Separation” or “Displacement” refers to the severance of
employment of any official or employee, who is neither qualified under
existing laws, rules and regulations nor has opted to retire under
existing laws, as a result of the Restructuring of the electric power
industry or Privatization of NPC assets pursuant to the Act.

Section 4. Funding.

Funds necessary to cover the separation pay under this Rule shall be
provided either by the Government Service Insurance System (GSIS) or from
the corporate funds of the NEA or the NPC, as the case may be; and in the
case of the DOE and the ERB, by the GSIS or from the general fund, as the
case may be.

The Buyer or Concessionaire or the successor company shall not be liable
for the payment of the separation pay.

Section 5. Preferential Rights of Employees.

Displaced or separated personnel as a result of the Restructuring of the
electric power industry and Privatization of NPC assets shall be given
preference in the hiring of manpower requirements of the newly-created
offices or the privatized companies: Provided, That the displaced or
separated personnel meet the prescribed qualifications. With respect to
employees who are not retained by NPC, the government, through the
Department of Labor and Employment (DOLE), shall endeavor to implement
re-training, job counseling, and job placement programs.

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Section 6. Implementation.

The DOE, NEA, and NPC, shall issue guidelines applicable to their
respective employees to implement this Rule within ninety (90) days from
effectivity of these Rules: Provided, That in the case of ERC, the independent
quasi-judicial body created under the Act, the manner of, and timetable for,
implementation of its organization shall be governed by Section 38 and
Section 39 of the Act.

RULE 34. EDUCATION AND PROTECTION OF END-USERS
Section 1. Guiding Principle.

Consistent with the declared policy that the State shall protect the public
interest as it is affected by the rates and services of electric utilities and
other providers of electric power, and pursuant to Section 76 of the Act, the
public shall be educated on the Restructuring of the electric power industry
and Privatization of NPC.

Section 2. Consumer Education.

The DOE shall undertake, in coordination with the ERC, NPC, NEA and the
Department of Education (DepEd), DTI, Office of the Press Secretary (OPS) —
Philippine Information Agency (PIA), the academe, and the non-government
organizations and consumer groups or associations, continuing information,
education and communication program for consumers. This shall include,
but not be limited to, the following:

(a) Industry Restructuring and NPC Privatization;

(b) Implementation of Retail Competition and Open Access and their
impact on End-users and on the proper use of electric power. It shall
include the existence of competitive electricity suppliers, choice of
competitive electricity services, regulated transmission and
distribution services, systems reliability, aggregation, market,
itemized billing, Stranded Cost, uniform disclosure requirements, low
income bill payment, energy conservation and safety measures,
among other topics; and

(c) Implementation of these Rules.

Section 3. Consumer Protection.

The ERC shall ensure consumer choice and promote consumer interests. It
shall issue the appropriate guidelines and mechanisms to handle the
following:

(a) Speedy resolution of consumer complaints;

(b) Creation of a permanent consumer complaint desk at ERC and in all

electric utilities and other providers of electric power to oversee the
promotion of consumer interests; and

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(c)

Dissemination of rate-related resolutions, including posting in the
ERC website and the publication of all notices of hearings to be
conducted by the ERC for the purpose of fixing rates or fees at least
twice for two (2) successive weeks in two (2) newspapers of nationwide
circulation.

RULE 35. FINES AND PENALTIES

Pursuant to Section 46 of the Act, the following are the fines and penalties:

(a)

(b)

(c)

(d)

(e)

(f)

(g)

(h)

The fines and penalties that shall be imposed by the ERC for any
violation of or non-compliance with the Act or these Rules shall range
from a minimum of Fifty Thousand Pesos (P50,000.00) to a maximum
of Fifty Million Pesos (R50,000,000.00).

Any Person who is found guilty of any of the prohibited acts pursuant
to Section 45 of the Act shall suffer the penalty of prision mayor and a
fine ranging from Ten Thousand Pesos (P10,000.00) to Ten Million
Pesos (P10,000,000.00), or both, at the discretion of the court.

The members of the Board of Directors of the juridical companies
participating in or covered in the Generation Companies, the
Distribution Utilities, the TRANSCO or its Buyer or Concessionaire or
Supplier who violate the provisions of the Act may be fined by an
amount not exceeding double the amount of damages caused by the
offender or by imprisonment from one (1) year or two (2) years or both
at the discretion of the court. This Rule shall apply to the members of
the Board who knowingly or by neglect allows the commission or
omission under the law.

If the offender is a government official or employee, he shall, in
addition, be dismissed from the government service with prejudice to
reinstatement and with perpetual or temporary disqualification from
holding any elective or appointive office.

If the offender is an alien, he may, in addition to the penalties
prescribed, be deported without further proceedings after service of
sentence.

Any case which involves question of fact shall be appealable to the
Court of Appeals and those which involve question of law shall be
directly appealable to the Supreme Court.

The administrative sanction that may be imposed by the ERC shall be
without prejudice to the filing of a criminal action, if warranted.

To ensure compliance with the Act, the penalty of prision correccional
or a fine ranging from Five Thousand Pesos (P5,000.00) to Five Million
Pesos (P5,000,000.00), or both, at the discretion of the court, shall be
imposed on any Person, including, but not limited to, the president,
member of the board, chief executive officer or chief operating officer
of the corporation, partnership, or any other entity involved, found

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(i)

()

guilty of violating or refusing to comply with any provision of the Act
or these Rules, other than those provided herein. [Sec. 46 Par. 8]

Any party to an administrative proceeding may, at any time, make an
offer to the ERC, conditionally or otherwise, for a consented decree,
voluntary compliance or desistance and other settlement of the case.
The offer and any or all of the ultimate facts upon which the offer is
based shall be considered for settlement purposes only and shall not
be used as evidence against any party for any other purpose and shall
not constitute an admission by the party making the offer of any
violation of the laws, rules, regulations, orders and resolutions of the
ERC, nor as a waiver to file any warranted criminal actions.

In addition, Congress may, upon recommendation of the DOE and/or
ERC, revoke such franchise or privilege granted to the party who
violated the provisions of the Act.

PART VI - FINAL PROVISIONS

RULE 36. SEPARABILITY CLAUSE

Should any provision herein be subsequently declared unconstitutional, the
same shall not affect the validity or the legality of the other provisions.

RULE 37. EFFECTIVITY

These Rules shall take effect on the fifteenth (15t) day from the date of its
publication in the Official Gazette or in at least two (2) newspapers of
general circulation.

February 27, 2002, Fort Bonifacio, Taguig, Metro Manila

VICENTE S. PEREZ, JR.
Secretary

APPROVED BY THE JOINT CONGRESSIONAL POWER COMMISSION
THIS 2'7t» DAY OF FEBRUARY 2002

(SGD) (SGD)

SEN. RENATO “COMPANERO” L. CAYETANO REP. ALIPIO CIRILO V. BADELLES
Co-Chairman, Senate Panel Co-Chairman, House of Representatives
(SGD) . (SGD)

SEN. JOHN H. OSMENA REP. FLORENCIO B. ABAD

Vice-Chairman Vice-Chairman

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SEN. JOKER P. ARROYO
Member

(SGD)
SEN. FRANCIS N. PANGILINAN
Member

(SGD)

SEN. AQUILINO Q. PIMENTEL JR.

Member

SEN. TERESA AQUINO ORETA
Member

(SGD) .
SEN. SERGIO R. OSMENA III
Member

(SGD)
REP. JULIO A. LEDESMA IV
Member

(SGD)
REP. RUY ELIAS C. LOPEZ
Member

(SGD)
REP. AUGUSTO H. BACULIO
Member

(SGD)
REP. FAYSAH MANIRI-RACMAN DUMARPA
Member

(SGD)
REP. CONSTANTINO G. JARAULA
Member

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