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Republic of the Philippines
DEPARTMENT OF ENERGY
(Kagawaran ng Enerhiya)

DEPARTMENT CIRCULAR NO. _DC2017- 05-0008
[~~

PROVIDING FOR THE POLICIES AND GUIDELINES ON THE CONDUCT
OF PERFORMANCE ASSESSMENT AND AUDIT FOR ALL POWER GENERATION,
TRANSMISSION AND DISTRIBUTION SYSTEMS AND FACILITIES

“WHEREAS, Republic Act No. 9136, otherwise known as “The Electric Power Industry Reform
Act of 2001” or “EPIRA” declares, among others, the policy of the State to “ensure the quality,
reliability, security and affordability of the supply of electric power and protect the public
interest as it is affected by the rates and services of electric utilities and other providers of
electric power”:

WHEREAS, pursuant to Section 37 of the EPIRA, the Department of Energy (DOE) is
specifically mandated and authorized among others, to “ensure the reliability, quality and
security of supply of electric power and to facilitate and encourage reforms in the structure
and operations of distribution utilities for greater efficiency and lower costs”:

WHEREAS, Sections 6 and 22 of the EPIRA expressly declare the generation sector as a
business affected with public interest, and the distribution sector as a regulated industry,
respectively;

WHEREAS, pursuant to Sections 9 and 21 of the EPIRA, National Transmission Corporation
(TransCo) or its Buyer/ Concessionaire is mandated to, among others, provide open and non-
discriminatory access; ensure and maintain the reliability, adequacy, security, stability and
integrity of the nationwide electrical grid in accordance with the Philippine Grid Code (PGC)
and the Transmission Development Plan (TDP);

WHEREAS, the Energy Regulatory Commission (ERC), in compliance with its mandate under
the EPIRA, promulgated the PGC and the Philippine Distribution Code (PDC), prescribing,
among others, the technical and financial performance standards that govern the operations
of Generation Companies, Transmission Service Provider/Operator and Distribution Utilities,
respectively;

WHEREAS, the DOE promulgated Department Circular No. DC2010-03-0003, entitled
“Directing All Power Generation Companies, the Transmission Service Provider, and All

Distribution Utilities to Ensure Adequate and Reliable Electric Power Supply in the Country,”
whereby all Generation Companies are mandated to, among others:

(a) Operate based on its maximum available capacity;
(b) Submit to the DOE its monthly operational status and fuel inventory reports; and

(c) Maintain an adequate in-country stock of fuels based on the minimum inventory
required by the Circular; and, strictly abide by the PGC.

WHEREAS, Department Circular No. DC2010-03-0003 mandates the TransCo or its Buyer/
Concessionaire to:
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(a) Ensure adequate provision and availability for access of its transmission facilities to all
grid users in line with the approved TDP;

(b) Evaluate all attendant circumstances before approval of deactivation or shutdown of
power plants;

(c) Monitor compliance of Generation Companies to the Grid Operating and Maintenance
Program and submit to the DOE any changes thereto;

(d) Report to the DOE all power interruption incidents and threats to system security and
reliability; and

(e) Institutionalize connection agreements with all grid users and impose all pertinent
requirements of the PGC.

WHEREAS, Department Circular No. DC2010-03-0003 mandates the Distribution Utilities to
regularly submit to the DOE the following:

(a) Distribution Development Plan (DDP) to monitor the existing, available, and future
supply requirements; and

(b) Monthly Operations Report (MOR) for the private Distribution Utilities and Monthly
Financial and Statistical Report (MFSR) for Electric Cooperatives.

WHEREAS, Department Circular No. DC2010-03-0003 further mandates the Distribution
Utilities to ensure (i) full compliance at all times with all the requirements of the PDC; (ii)
reporting of significant load interruptions in its franchise area or any threats that may lead to
such events; and, (iii) that the power requirements within their franchise areas are adequately
covered by supply contracts or purchases from the Wholesale Electricity Spot Market (WESM)
at all times;

WHEREAS, the DOE noted the increasing and frequent occurrences of Forced and
Unplanned Outages particularly of large baseload power plants based on the reports of the
National Grid Corporation of the Philippines (NGCP) resulting to issuances of Yellow and Red
Alert notices, which may lead to supply shortfall and possibly rotating brownouts;

WHEREAS, the DOE, in the exercise of its mandate under Republic Act No. 7638 and EPIRA,
to ensure the security, reliability, quality and affordability of the supply of electric power, deems
it necessary to institutionalize a regular compliance assessment on all issuances relative to
PGC, PDC, terms and conditions on permits and licenses issued to power generation,
transmission and distribution sectors;

WHEREAS, on 08 August 2016 and 25 August 2016, the DOE, separately entered into a
Memorandum of Agreement with the Institute of Integrated Electrical Engineers of the
Philippines, Inc. (IIEE) and the Philippine Society of Mechanical Engineers (PSME),
respectively, in which both organizations agreed to provide their expertise, pro bono, to assist
the DOE in the conduct of Performance Assessment and Audit of the complete generation,
transmission and distribution infrastructure in the country;

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WHEREAS, all data and findings from the Task Force created under the Memorandum of
Agreement with the IIEE and PSME, shall be included as preliminary input in the conduct of
overall performance assessment and audit for all power generation, transmission and
distribution sectors;

NOW, THEREFORE, premises considered, the DOE hereby adopts the following policies and
guidelines on the conduct of technical and operational audit of all power generation,
transmission and distribution systems and facilities in the country:

Section 1. Declaration of Policy and Objectives.

The DOE hereby directs the conduct of overall performance assessment and audit for all
power generation, transmission and distribution sectors, hereinafter referred to as the
Performance Assessment and Audit for purposes of among others, the following:

(a) Evaluate the overall performance and efficiency of the power generation, transmission
and distribution systems and facilities in the country;

(b) Conduct of post-review of compliance with the existing laws and regulations, as well
as to the terms and conditions of the various permits and licenses issued to the said
facilities and their respective owners and/or proponents, such as but not limited to
EPIRA, WESM Rules, Retail Rules and Market Manuals, PGC, PDC and
Environmental Standards:

(c) Determine and remove bottlenecks and inefficiencies in the operation of power
generation, transmission and distribution systems and facilities that cause the
disruptions in the supply of electricity and the volatility of electricity prices in the market:

(d) Identify effective systems of incentives, and appropriate penalties, to encourage
greater efficiencies and improve the performance of generation, transmission and
distribution sectors;

(e) Ensure that the power industry is abreast and responsive to technological
advancements;

(f) Ensure that the power industry is able to fully respond to the requirements of the
economic activities and support the economic growth targets set by the Development
Budget Coordinating Council (DBCC); and,

(g) Incorporate best practice and good governance principles that enhance transparency,
fairness and accountability in the operation of the various generation, transmission and
distribution systems and facilities in the country.

The Performance Assessment and Audit shall serve as a DOE tool for the assessment of the
overall performance of the electric power industry thereby paving the way for policy
development that shall be instrumental in the attainment of the secure, reliable and affordable
supply of electric power to support the economic growth of the country.

Nothing in this Circular is intended to encroach on the authority of the ERC, the Grid
Management Committee (GMC), and the Distribution Management Committee (DMC).

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Section 2. Scope of Coverage.
This Circular shall apply to:

(a) All Generation Companies owning and/or operating Generation Facilities in the main
grid and off-grid areas;

(b) All Transmission Service Provider and System Operator in the main grid and off-grid
areas; and,

(c) All Distribution Utilities in the main grid and off-grid areas.

For this purpose, the aforementioned Electric Power Industry Participants are mandated to
ensure compliance with the Performance Assessment and Audit requirements, including but
not limited to:

(a) Provide within the prescribed period the required data, reports, records and other
information that are deemed necessary for the successful implementation of the
Performance Assessment and Audit activities; Provided, that all members of the
Performance Assessment and Audit Teams created pursuant to this Circular shall
ensure utmost confidentiality of any information received for the purpose of this audit:

(b) Grant coordinated visitation privileges in the form of guided full
accessibility/unrestricted access to their facilities to conduct inspection of facilities for
the purpose of verifying the authenticity of reports submitted in compliance to
standards;

(c) Allow the conduct of testing, consistent with industry standards and practices, of any
or all parts of the facilities; and,

(d) Assist and provide security of the Performance Assessment and Audit Task Forces in
the conduct of inspection.

Section 3. Creation of the Power Generation, Transmission and Distribution
Performance Assessment and Audit Task Forces.

To perform the Performance Assessment and Audit, it is hereby created the Performance
Assessment and Audit Team on Power Generation Facilities (PAAT-PGF), Performance
Assessment and Audit Team on Transmission Service Provider/Operator (PAAT-TSPO) and
the Performance Assessment and Audit Team on Distribution System Facilities (PAAT-DSF),
as follows:

(a) Performance Assessment and Audit Team on Power Generation Facilities (PAAT-
PGF), to be composed as follows:

Chairman: DOE Undersecretary or Assistant Secretary for Power

Members:

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i. National Transmission Corporation (TransCo) Representatives;
ii. Grid Management Committee (GMC) Representatives ( Independent of Electric Power
Industry Participants);
ii. Philippine Electricity Market Corporation (PEMC) Representatives;
iv. WESM Market Governance Committee Members from Market Surveillance Committee
(MSC) and Technical Committee (TC); and
v. National Electrification Administration (NEA) Representatives.

(b) Performance Assessment and Audit Team on Transmission Service Provider/Operator
(PAAT-TSPO), to be composed as follows:

Chairman: DOE Undersecretary or Assistant Secretary for Power
Members:

i. National Transmission Corporation (TransCo) Representatives;

ii. Grid Management Committee (GMC) Representatives (Independent of Electric Power
Industry Participants);

ii. Distribution Management Committee (DMC) Representatives (Independent of Electric
Power Industry Participants):

iv. Philippine Electricity Market Corporation (PEMC) Representatives;

v. WESM Market Governance Committee Members from Market Surveillance Committee
(MSC), Technical Committee (TC), PEMC Audit Committee (PAC); and

vi. National Electrification Administration (NEA) Representatives.

(Cc) Performance Assessment and Audit Team on Distribution System Facilities (PAAT-
DSF):

Chairman: DOE Undersecretary or Assistant Secretary for Power
Members:

i. National Electrification Administration (NEA) Representatives;
ii. Distribution Management Committee Representatives (Independent of Electric Power
Industry Participants);
iii. National Transmission Corporation (TransCo) Representatives; and
iv. Philippine Electricity Market Corporation (PEMC) Representatives.

Other relevant government agencies and private sector institutions [e.g., ERC, UP-National
Engineering Center; IIEE; PSME] may be invited to join the PAAT-PGF; PAAT-DSF and
PAAT-TSPO, as deemed necessary to address the effectiveness of the Performance
Assessment and Audit.

The Undersecretary or Assistant Secretary for Power, assisted by the Electric Power Industry
Management Bureau shall oversee the conduct of the Performance Assessment and Audit
and provide guidance and/or direction to the PAAT-PGF, PAAT-TSPO and PAAT-DSF.

To support the operations of the PAAT-PGF, PAAT-TSPO and PAAT-DSF, a Technical
Secretariat shall be also headed by the Electric Power Industry Management Bureau, duly
, supported by the Energy Policy and Planning Bureau, Renewable Energy Management

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Bureau, Energy Utilization Management Bureau, Legal Services, Administrative Services and
Finance Services. For this purpose, the Technical Secretariat shall comprise the following
support groups:

Database Management Support Group which shall be responsible for gathering,
summarizing and maintaining the data and information needed by the PAAT-PGF,
PAAT-TSPO and PAAT-DSF:

Technical Inspection Support Group which shall be responsible for assisting the PAAT-
PGF, PAAT-TSPO and PAAT-DSF in the formulation and implementation of the
Performance Assessment and Audit Plan, conduct of site inspections and field visits,
preparation of status reports and other tasks that the task forces may deem necessary
for effectively carrying out the Performance Assessment and Audit activities: and

Administrative Support Group which shall be responsible for ensuring the provision of
administrative support to include arrangements for conduct of meeting and
inspections, travel arrangements and logistics and liquidation of expenses, among
others.

Section 4. Responsibilities of the Assessment and Audit Teams.

The PAAT-PGF, PAAT-TSPO and PAAT-DSF shall have the following responsibilities:

(a)

vi.

(b)

(c)

(d)

Within thirty (30) days from issuance of this Circular, conduct meetings and workshops
to define their respective approach and methodology for the conduct of Performance
Assessment and Audits and to:

Determine the priority areas and entities to be studied:

Determine the reports/documents and prepare templates needed to validate the
performance;

Achieve common understanding by all Performance Assessment and Audit Team
Members including responsibilities, assignments and accountabilities;

Establish the procedures/protocol with Auditees for the conduct of Performance
Assessment and Audit and on-site testing and inspection;

Prepare the proposed roll out program, within 90 days upon effectivity of this Circular,
in a Performance Assessment and Audit Plan (PAAP) to be approved by the DOE
Secretary or the Undersecretary for Power as designated by the DOE Secretary; and
Inform the industry participants of the PAAP through posting in the DOE website and
through appropriate mediums.

Implement the PAAP taking into consideration the deadline provided by the DOE
Secretary and the resources available for the conduct of the Performance Assessment
and Audit;

Identify priority systems and facilities for the conduct of Performance Assessment and
Audit and recommend as may be necessary, to include on-site testing and inspections;

Identify and recommend generation, transmission and distribution systems and
facilities that will be prioritized in the conduct of the Performance Assessment and
Audit;

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(e) Engage, if deemed necessary, of Independent Third Party Auditor and/or hiring of
technically qualified persons on a contractual basis, to assist in the conduct of the
Performance Assessment and Audit:

(f) Undertake data gathering and analysis;

(g) Coordinate with the Administrative and Finance Support Team on any support or
assistance needed which shall include, but not limited to travel arrangements, conduct
of meetings with concerned Generation Companies, Transmission Service
Provider/Operator or Distribution Utilities and relevant entities, securing necessary
permits, clearances on the conduct on-site inspections and field visits, and
procurement/production of materials;

(h) Prepare monthly status report to the DOE Secretary through the Undersecretary for
Power, on the progress of the Performance Assessment and Audit identifying actual
accomplishments, challenges and barriers that require intervention by the DOE and
the recommendations to remedy the same to ensure the success of the Performance
Assessment and Audit; and

(i) identify the gaps and weaknesses in the monitoring and enforcement, and recommend
policies, programs and strategies to improve the performance and compliance of the
industry participants.

Section 5. Logistics Support.

The PAAT-PGF, PAAT-TSPO and PAAT-DSF shall provide an estimate of the costs to be
incurred in the performance of their mandates for approval of the DOE Secretary. Upon the
institutionalization of the Performance Assessment and Audit of generation, transmission and
distribution systems and facilities, the funding requirements shall be included in the DOE
Regular Budget as approved in the General Appropriations Act.

The Performance Assessment and Audit for each of the generation, transmission and
distribution systems and facilities shall be conducted at least once every three (3) years, or as
may be necessary, as directed by the DOE Secretary.

Section 6. Confidentiality and Ownership of Information and Findings.

All data, information and findings relevant to the conduct of this Performance Assessment and
Audit shall be owned and for the exclusive use of the DOE. The results of Performance
Assessment and Audit may be provided by the DOE to the ERC, for purposes of rulemaking
and establishment and enhancement of standards.

Pursuant to a non-disclosure agreement, all members of the task forces shall not use, disclose
any information, data or findings other than for the purposes as identified under this Circular.

Section 7. Institutionalization of Performance Assessment and Audit.

From the effectivity of this Circular, all Generation Companies, Transmission Service
Provider/System Operator and Distribution Utilities shall be subjected to a Performance

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Assessment and Audit once every three (3) years, or, as may be directed by the DOE.

As may be determined by the DOE, the Performance Assessment and Audit may be
conducted by an independent third party and reputable Performance Assessment and Audit
firms. For this purpose, the DOE shall develop procedure on the accreditation or engagement
of an independent third party auditor.

Section 8. Incentives and Penalties.

To ensure compliance to the provisions of this Circular, the DOE may recommend to the ERC,
the imposition of penalties to non-complying Electric Power Industry Participants.

Further, the DOE shall develop an appropriate system of incentives and penalties on the
performances of the Electric Power Industry Participants in line with the Performance
Assessment and Audit parameters as may be determined on subsequent issuances.

Section 9. Regulatory Support.

The DOE shall coordinate with the ERC on the required regulatory support for the
institutionalization of Performance Assessment and Audit, which include among others, the
accreditation of independent third party or testing/inspection firms for the conduct of
Performance Assessment and Audit.

A separate policy and regulatory framework shall be developed by the DOE, in consultation
with the ERC, for the implementation of operational improvement plan, to be included in but
not limited to the Philippine Distribution and Grid Codes, arising from the conduct of the
Performance Assessment and Audit to achieve provision of adequate, reliable, secured and
reasonably-priced electricity services.

Section 10. Separability Clause.

If for any reason, any section or provision of this Circular is declared unconstitutional or invalid,
the other parts or provisions hereof which are not affected thereby shall continue to be in full
force and effect.

Section 11. Effectivity and Publication.

This Department Circular shall be effective immediately upon its publication in two (2)
newspapers of general circulation. Copies of this Circular shall be filed with the University of
the Philippines Law Center - Office of the National Administrative Register (UPLC-ONAR).

Signed this day of 2017 at DOE, Energy Center, Rizal Drive, Bonifacio Global

City, Taguig City, Metro Manila.

ALFONSO G. CUSI
Republic of the Philippines S¢cretary Ag!

MAYO3 2017 mM

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