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

DEPARTMENT CIRCULAR NO. _0C2022-05 -00! a

ADOPTING AND INTEGRATING THE POLICIES AND PROGRAMS FOR THE
GRADUATION AND RATIONALIZATION OF THE UNIVERSAL CHARGE FOR
MISSIONARY ELECTRIFICATION SUBSIDY PURSUANT TO DEPARTMENT
CIRCULAR NO. DC2019-01-0001

WHEREAS, Section 2 of Republic Act No. 9136, otherwise known as the Electric
Power Industry Reform Act of 2001 (EPIRA), declares the policy of the State to: (i) ensure
and accelerate the total electrification of the country; (ii) ensure the quality, reliability,
security, and affordability of the supply of electric power; (iii) enhance the inflow of private
capital and broaden the ownership base of the power generation, transmission and
distribution sectors; and (iv) encourage the efficient use of energy and other modalities of
demand-side management;

- WHEREAS, Section 70 of the EPIRA states that the National Power Corporation
(NPC), through the Small Power Utilities Group (SPUG), shall be responsible for providing
power generation and its associated power delivery systems in areas that are not connected
to the transmission system, which are being 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 Energy Regulatory Commission (ERC);

WHEREAS, Rules 13 and 14 of the EPIRA Implementing Rules and Regulations
(EPIRA-IRR) encourage the private sector participation in the missionary electrification
program of the Government, especially in the provision of generation by the New Power
Providers (NPPs) in the missionary areas and electrification of remote and unviable areas
by the Qualified Third Parties (QTPs);

WHEREAS, Section 3(e) of Rule 13 and Section 6(a) of Rule 18 of the EPIRA-IRR
mandate the Power Sector Assets and Liabilities Management Corporation (PSALM) as the
Universal Charge Administrator and the NPC as the petitioner of Universal Charge for
Missionary Electrification (UC-ME);

WHEREAS, Chapter III, Section 9 of the Republic Act No. 10531, otherwise known
as the National Electrification Administration (NEA) Reform Act of 2013, mandates all
electric cooperatives with off-grid areas to submit their graduation program from the UC-ME
subsidy in relation to the acquisition of generation assets of NPC-SPUG and the full
takeover of the generation function of such areas from NPC-SPUG;

WHEREAS, Republic Act No. 11646, otherwise known as the Microgrid Systems Act
of 2022, aims to accelerate total electrification and promote private sector participation in
the electrification of unserved and underserved areas;

WHEREAS, Section 5(g) of Republic Act No. 7638, otherwise known as the
Department of Energy Act of 1992, states as one of the powers and functions of the DOE
is to 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;

ADOPTING AND INTEGRATING THE POLICIES AND PROGRAMS FOR THE GRADUATION AND RATIONALIZATION
OF THE UNIVERSAL CHARGE FOR MISSIONARY ELECTRIFICATION SUBSIDY-PURSUANT TO DEPARTMENT
CIRCULAR NO. DC2019-01-0001

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WHEREAS, Chapter VII, Section 24 of the Republic Act No. 11285 states that the
Department of Energy (DOE), with the assistance of the ERC and the Philippine Economic
Zone Authority, shall pursue a Demand Side Management (DSM) program for the electric
power industry for the reduction of energy consumption through effective load management
resulting in the decrease of power demand and the migration of power demand from peak
to off-peak periods or such measures undertaken by distribution utilities to encourage end-
users to properly manage their loads to achieve efficiency in the utilization of fixed
infrastructures in the systems;

WHEREAS, Department Circular No. DC2018-08-0024 entitled, “Promulgating the
Rules and Guidelines Governing the Establishment of the Renewable Portfolio Standards
for Off-grid Areas”, aims to rationalize the efficient use of the UC-ME and improve seif-
efficiency in power generation through the integration of renewable energy (RE) in the
supply mix in off-grid areas;

WHEREAS, Department Circular No. DC-2019-01-0001 entitled, “Prescribing the
Omnibus Guidelines in Enhancing Off-Grid Power Development and Operations”, provides
the overall framework for interconnection of off-grid areas into the Grid, the promotion of
capacity adequacy and operational efficiency in small grids, and optimal generation
planning in the large island grids;

WHEREAS, Section 2 of Rule 10 of the Department Circular No. DC2019-01-0001
states that the DOE shall formulate a new policy towards the rationalization of subsidies in

off-grid areas towards the removal or significant reduction of UC-ME in consultation with the
stakeholders;

WHEREAS, the DOE has issued two separate advisories, on 24 May 2019, and on
8 October 2020, that provide detailed explanation and updates on the objectives and
strategies of the UC-ME graduation and rationalization program of the Government towards
a more efficient, well-targeted provision of subsidy to electricity in missionary areas;

WHEREAS, the DOE has issued Department Circular No. DC2018-02-0003,
supplemented by Department Circular No. DC2021-09-0030, which provides the policy for

the conduct of Competitive Selection Process in the procurement of power supply of the
DUs with off-grid areas;

WHEREAS, the DOE has issued Department Circular No. DC2021-11-0039 entitled,
“Mandating the National Transmission Corporation (TRANSCO) as Small Grid System
Operator (SO) in Specific Off-grid Areas", to formulate grid interconnection development
plans and programs for the off-grid areas and prepare the Distribution Utilities (DUs) and

Generation Companies for the assumption of TRANSCO as Small Grid SO and the eventual
interconnection of the small grids into the Grid;

WHEREAS, through the assistance of the European Union-funded Access for
Sustainable Energy Programme, the DOE conducted a study on the demand-side aspect

of the UC-ME rationalization that focuses on the customer-level removal of UC-ME
subsidies, which was completed on 19 March 2021;

ADOPTING AND INTEGRATING THE POLICIES AND PROGRAMS FOR THE GRADUATION AND RATIONALIZATION

OF THE UNIVERSAL CHARGE FOR MISSIONARY ELECTRIFICATION SUBSIDY PURSUANT TO DEPARTMENT
CIRCULAR NO. DC2019-01-0001

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WHEREAS, the DOE conducted a review of all relevant policies and guidelines, and
presented recommendations to the stakeholders through the following consultation
meetings conducted on various dates:

e Discussion of the results of the analysis for Oriental Mindoro Electric
Cooperative, Inc. and Rombion Electric Cooperative, Inc. demonstrating the
options for subsidy rationalization based on the customer-level data and other
available economic data with the EU-ASEP, NPC, ERC, NEA, PSALM,
TRANSCO, Association of Isolated Electric Cooperatives, House of
Representatives, Philippine Rural Electric Cooperatives Association Inc., and
Department of Social Welfare and Development on 14 December 2020;

e Focus Group Discussions with the ERC, Busuanga Island Electric
Cooperative, Inc., Palawan Electric Cooperative, Occidental Mindoro Electric
Cooperative, Inc., Northern Samar Electric Cooperative, Inc., Province of
Siquijor Electric Cooperative, Inc., Sulu Electric Cooperative, Inc., Sultan
Kudarat Electric Cooperative, Inc. and Powersource Philippines Incorporated
on 9 February 2021; and

e Public Consultations with stakeholders on 6 and 7 October 2021.

NOW THEREFORE, FOR AND IN CONSIDERATION OF THE FOREGOING
PREMISES, the DOE hereby issues the following policies on the rationalization of subsidies
in off-grid areas:

RULE 1. POLICY OBJECTIVES AND SCOPE

1.1. The policy objectives of this Circular in rationalizing the provision of UC-ME
subsidy in the missionary areas in a holistic manner are to:

1.1.1. Empower the DUs in off-grid areas to formulate plans and programs for
the rationalization of UC-ME subsidy in their respective franchise areas
in cooperation and consultation with their respective stakeholders;

1.1.2. Incorporate plans of interconnection to the Grid to the overall UC-ME

subsidy rationalization plans and programs of the DUs with off-grid
areas;

1.1.3. Institutionalize least-cost generation planning to enable the entry of
low-cost generation technologies in smail grids and other off-grid power
systems, including, but not limited to, RE, hybrid RE systems for
advanced baseload technologies, and other emerging technologies
while ensuring the provision of resilient, reliable, secure, affordable and
quality electricity services in off-grid areas;

1.1.4. Encourage the DUs to practice and promote energy efficiency
programs and measures in the off-grid areas, such as but not limited to
load aggregators, smart meters, load shedding, and storage of unused
energy during off-peak hours using efficient battery systems, including
demand-side management (e.g. energy saving tips, minimum energy

ADOPTING AND INTEGRATING THE POLICIES AND PROGRAMS FOR THE GRADUATION AND RATIONALIZATION 7
OF THE UNIVERSAL CHARGE FOR MISSIONARY ELECTRIFICATION SUBSIDY PURSUANT TO DEPARTMENT
CIRCULAR NO. DC2019-01-0001 .

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performance standards and encouraging the use of off-peak electricity
instead of peak-electricity), as options to reduce the electricity bills;

1.1.5. Optimize the recovery of cost of electricity services through innovative
tariff mechanisms that reflect the capacity to pay of the electricity end-
users;

1.1.6. Set the timeline for the reduction of UC-ME subsidy in consideration of
the actual and foreseen socio-economic conditions of the consumers
in the missionary areas as well as the measures to mitigate the adverse
impacts of the subsidy reduction, as necessary; and

1.1.7. Harmonize the policies and regulations with respect to the setting of
tariffs and subsidies in the off-grid areas.

1.2. Consistent with the Department Circular No. DC2019-01-0001, the scope and
applicability of this Circular shall govern the following stakeholders in off-grid
areas:

Distribution Utilities (DUs);

National Power Corporation (NPC);

National Transmission Corporation (TRANSCO);

New Power Providers (NPPs);

Renewable Energy Developers eligible to Renewable Energy

Developers’ Cash Incentive in accordance with the Renewable Energy
Act of 2008;

.2.6. Microgrid System Providers (MGSPs); and

1.2
1.2.7. All customers in off-grid areas that currently receive the UC-ME
subsidy.

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RULE 2. DEFINITION OF TERMS

2.1. "Commercially Viable" refers to an area or electricity service where the
resultant True Cost of Generation Rate is equal or less than the Subsidized
Approved Generation Rate;

2.2. “Department of Energy” or “DOE” refers to the Government agency created
by virtue of Republic Act No. 7638 and mandated by the EPIRA to supervise
the restructuring of the electric power industry;

2.3. “Distribution Development Plan” or “DDP” refers to the program for
expansion, reinforcement and rehabilitation of the distribution system which is
prepared by the DU and submitted to the DOE for integration with the Power
Development Plan and Philippine Energy Plan. In the case of Electric
Cooperatives (ECs), such plans shall be submitted through the NEA for review
and consolidation. For the purpose of this Department Circular, the DDP will
include the Island Interconnection Development Plan, as defined in the
Department Circular No. DC2021-11-0039;

ADOPTING AND INTEGRATING THE POLICIES AND PROGRAMS FOR THE GRADUATION AND RATIONALIZATION
OF THE UNIVERSAL CHARGE FOR MISSIONARY ELECTRIFICATION SUBSIDY PURSUANT TO DEPARTMENT
CIRCULAR NO. DC2019-01-0001

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2.4.

2.5.

2.6.

2.7.

2.8.

2.9.

2.10.

2.11.

2.12.

2.13.

2.14.

ADOPTING AND INTEGRATING THE POLICIES AND PROGRAMS FOR THE GRADUATION AND RATIONALIZATION

“Distribution Utility or “DU” refers to an EC, private corporation, local
government unit or multipurpose cooperative which has an exclusive franchise
to operate a Distribution System;

“DU-operated microgrid system” refers to a microgrid system owned and
operated by a DU in a DU identified unserved area in its local total
electrification roadmap;

“Energy Regulatory Commission” or “ERC” refers to the quasi-judicial
regulatory agency created pursuant to the EPIRA;

"Full Cost Recovery Rate" or "FCRR" refers to the rate, expressed in Peso
per kilowatt-hour, that recovers the full efficient costs of generating,
distributing and supplying electricity in unserved and underserved areas by
MGSPs as may be authorized by the ERC;

"Graduation" refers to the cessation of provision of the UC-ME subsidy in an
area, by reason that the area or electricity service is deemed commercially
viable or when the area is interconnected into the Grid;

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

“Least-Cost Generation Planning” refers to power generation planning
activity that will facilitate the entry of low-cost and efficient generation
technologies in replacement or hybridization of existing high-cost diesel and
bunker fuel systems in consideration to the timeline of the interconnection of
small grids to the grid:

“Microgrid System Provider” or “MGSP”, which is also known as the
QTP, refers to a natural or juridical person whose business includes the
installation, operation, and maintenance of microgrid systems in unserved or
underserved areas nationwide;

“Microgrid System Provider Service Contract” or “MSC” refers to the
contract between the microgrid system provider and the NPC whereby the
microgrid system provider performs the missionary electrification function on
behalf of the NPC and provides integrated power generation and distribution

services in an unserved or underserved area, and to receive subsidy
whenever applicable;

“Missionary Area" refers to an off-grid area that is deemed eligible for UC-

ME subsidy by the DOE because the provision of basic electricity services is
not commercially viable;

“Missionary Electrification Development Plan” or “MEDP” refers to the
development plan of the DOE, updated annually, detailing the policies,
strategies, plans and programs for missionary electrification, including the
capital investment and operation in off-grid areas;

OF THE UNIVERSAL CHARGE FOR MISSIONARY ELECTRIFICATION SUBSIDY PURSUANT TO DEPARTMENT

CIRCULAR NO. DC2019-01-0001
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2.15.

2.16.

2.17.

2.18.

2.19.

2.20.

2.21.

2.22.

2.23.

2.24.

2.25.

2.26.

“National Electrification Administration” or “NEA” refers to the
Government agency created under Presidential Decree No. 269, as amended,
mandated to supervise the ECs;

“National Power Corporation” or “NPC” refers to the government
corporation created under Republic Act. No. 6395, as amended by EPIRA, to
perform missionary electrification through the Smal! 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 Grid;

“National Transmission Corporation” or “TRANSCO” refers to the
corporation organized pursuant to EPIRA, to acquire all transmission assets
of the NPC and is mandated pursuant to Department Circular No. DC2021-
11-0039 to serve as the Small Grid System Operator in specific off-grid areas;

“New Power Provider" or "NPP" refers to a private entity or government-
owned and controlled corporation deemed technically and financially capable
to provide generation service in off-grid areas, in accordance with the CSP
Rules;

“NPC Graduation Plan’ refers to a comprehensive and detailed strategy of
the NPC to attract private sector participation in areas served by the NPC;

“Off-Grid Area” refers to an area or system that is not connected to the Grid;

“Power Supply Agreement” or “PSA” refers to an agreement between a
power producer and a DU for the supply of power;

“Power Supply Procurement Plan” or “PSPP” refers to the integral part of
the DU’s DDP for the acquisition of a variety of demand-side and supply-side
resources to cost-effectively meet the electricity needs of its customers;

"Power Sector Assets and Liabilities Management Corporation" or

"PSALM" refers to the government-owned and controlled corporation created
pursuant to the EPIRA;

“Private Sector Participation” refers to the private investment on power
generation facilities and associated delivery systems in order to meet the
demand requirements of an off-grid area, thus performing the functions of the
NPC-SPUG as defined in Section 70 of the EPIRA;

“QTP Service Contracts” or “QSC” refers to the agreement between the
DU or NPC and the QTP, defining among others their responsibilities, terms
and conditions including the applicable performance and service standards,
excluding the Full Cost Recovery Rate, in providing the missionary
electrification in QTP Service Area; .

“Renewable Portfolio Standards” or “RPS” refers to a market-based policy
that requires electric power industry participants, including suppliers, to source

ADOPTING AND INTEGRATING THE POLICIES AND PROGRAMS FOR THE GRADUATION AND RATIONALIZATION
OF THE UNIVERSAL CHARGE FOR MISSIONARY ELECTRIFICATION SUBSIDY PURSUANT TO DEPARTMENT

CIRCULAR NO. DC2019-01-0001
Page 6 of 17

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an agreed portion of their energy supply from eligible renewable energy
resources;

2.27. “Subsidized Approved Generation Rate" or "SAGR" refers to the rate,
expressed in peso per kilowatt-hour, which the ERC has determined to be
socially acceptable for a DU to pay for generation service. SAGR is further
modified by this Circular as the generation rates approved by the ERC ona
per area and customer class basis. The SAGR combined with the UC-ME
subsidy should be equal to the TCGR;

2.28. "Subsidized Approved Retail Rate" or "SARR" refers to the rate,
expressed in peso per kilowatt-hour, which the ERC has determined to be the
maximum cost that an end-user should pay for an integrated power generation
and distribution service by a MGSP. The SARR combined with the UC-ME
subsidy should equal to the FCRR;

2.29. “True Cost of Generation Rate" or “TCGR" refers to the full efficient cost of
generating power in an area;

2.30. “Underserved area” refers to an area currently served by home power
systems, microgrid systems, or DUs whose supply of electricity is less than
twenty-four (24) hours daily because of the non-implementation of approved
capital expenditure projects, noncompliance with the service parameters of
the Philippine Distribution Code, or any other reason resulting to an overall
failing mark based on ERC’s fatest annual technical evaluation of performance
of distribution systems;

2.31. “Universal Charge for Missionary Electrification" or "UC-ME" refers to the
portion of the Universal Charge which is designated for Missionary
Electrification and further defined by the Microgrid Systems Act as the portion
of the non-bypassable charge passed on and collected from all end-users on
a monihly basis by the DUs pursuant to EPIRA, a portion of which is allocated
for the provision of integrated power generation and distribution services in
unserved areas and underserved areas not connected to the grid or within a
franchise area where the distribution system is not connected to the grid; and

2.32. “Unserved area” refers to an area with no electricity access, no distribution
system lines, no home power systems, no connection to any microgrid

system, or for which no distribution grid extension has been developed or
implemented by the DU.

RULE 3. INTERCONNECTION AND INTRA-CONNECTION PROJECTS

3.1. The provision of UC-ME subsidy shall cease upon the interconnection of an
off-grid area to the Grid.

3.2. | The provision of UC-ME subsidy to DU-operated microgrid system and MGSP
operation shall cease upon the interconnection of the unserved and
underserved area to the Grid-connected distribution system.

A

ADOPTING AND INTEGRATING THE POLICIES AND PROGRAMS FOR THE GRADUATION AND RATIONALIZATION
OF THE UNIVERSAL CHARGE FOR MISSIONARY ELECTRIFICATION SUBSIDY PURSUANT TO DEPARTMENT
CIRCULAR NO. DC2019-01-0001

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3.3.

In accordance with the Rule 9 of the Department Circular No. DC2019-01-
0001, the TRANSCO, its buyer, concessionaire or successor-in-interest, in
coordination with the concerned DU with off-grid areas, local government units
and other off-grid stakeholders, shall prepare and submit to the DOE, copy
furnished the ERC, NEA and NPC, not later than sixty (60) days upon the
effectivity of this Circular, of its updated Plan of interconnection of off-grid
islands into the Grid which contains all scheduled and planned interconnection
projects in the next ten years containing the following information:

3.3.1.
3.3.2.
3.3.3.
3.3.4.
3.3.5.

3.3.6.
3.3.7,

Brief technical description of each interconnection project:

Ownership structure and sources of funding;

Proposed Operations and Maintenance Plan;

Proposed cost recovery scheme;

Schedule of implementation, after considering alternatives such as
micro-grid systems to electrify off-grid with the least cost;

Status of the Project; and

Project risks and other relevant information.

3.4.

3.5.

3.6.

3.7.

4.1.

DUs with potential interconnection projects as listed in Annex “A” shall
incorporate its interconnection development plan to the Grid as a component
of its annual DDP and PSPP. Additional list of potential Interconnection
Projects will be regularly updated and published at the websites of DOE, NEA,
NPC and TRANSCO, its buyer, concessionaire or successor-in-interest.

Each DU with an off-grid area must ensure that the new PSAs resulting from
the conduct of Competitive Selection Process upon the effectivity of this
Circular that will claim the UC-ME subsidy shall have a cooperation period that
will consider the schedule of the implementation of the interconnection project
as Stated in the Transmission Development Plan as reviewed and endorsed
by the TRANSCO to the DOE.

Consistent with Rule 9 of the Department Circular No. DC2019-01-0001, all
transmission lines and associated facilities established from the
implementation of an interconnection project connecting an off-grid area into
the Grid and resulting in the cessation of provision of UC-ME subsidy shall be
deemed as transmission assets. The funds used for such projects obtained
as grants from both local and national government or from other donors shall
not form part of the cost recovery of the said assets.

The NPC, through its Missionary Electrification Plan (MEP), shall estimate the
corresponding UC-ME subsidy reduction of each interconnection project in the
updating of the total UC-ME subsidy requirements.

RULE 4. SUPPLY-SIDE PLANNING FOR LOW-COST AND MODERN

GENERATION TECHNOLOGIES

Scope of Least-Cost Generation Planning. Recognizing the contribution of
power generation planning in reducing the long-term cost of electricity in off-
grid areas, this Circular hereby amends Section 6.5 of the Department Circular
No. DC2019-01-0001 such that the conduct of the least-cost generation
planning must now cover all off-grid areas, whenever applicable.

ADOPTING AND INTEGRATING THE POLICIES AND PROGRAMS FOR THE GRADUATION AND RATIONALIZATION
OF THE UNIVERSAL CHARGE FOR MISSIONARY ELECTRIFICATION SUBSIDY PURSUANT TO DEPARTMENT
CIRCULAR NO. DC2019-01-0001 3

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4.2. General Planning Process. The least-cost generation planning activity shall
be an area-based, collaborative and participatory process. Specific planning
methodology or approach shall be established according to the demand level
as well as local conditions of the area. Initially, a suitable planning tool and
template shall be established which will be subjected to periodic review.

4.3. Planning Parameters. The least-cost generation planning activity must
adequately incorporate the following parameters and aspects, including but

not limited to:

4.3.1. Scenarios of the demand forecasts that incorporate the energy
efficiency measures and the local socio-economic development plans;

4.3.2. Scenarios for the interconnection of small grids to the Grid;

4.3.3. Existing power supply contracts of the concerned DU with off-grid
areas;

4.3.4. Available renewable energy potentials in the area;

4.3.5. Performance and cost profiles of candidate renewable and
conventional power technologies, focusing on the advanced and low-
cost technologies to replace the existing high-cost diesel power plants;

4.3.6. Potential for renewable-based hybrid micro-grid systems in the case of
small communities or islets; and

4.3.7. Compliance with the requirements of the Republic Act No. 9513 or the

Renewable Energy Act of 2008, the Republic Act No.11285 or the
Energy Efficiency and Conservation Act, and their respective
Implementing Rules and Regulations, as well as the environmental and
other relevant policy considerations.

4.4. Responsibilities for Least-Cost Generation Planning

4.4.1.

4.4.2.

4.4.3.

Sixty (60) days upon the effectivity of this Circular, the DOE, in
collaboration with the NEA, NPC, TRANSCO, the concerned DUs and
the other service providers in the off-grid areas shall set the general
methodology and the planning criteria in relation to the parameters set
in Section 4.3 of this Circular.

As its additional responsibility for being the system operator in the small
grids, the TRANSCO shall assist the concerned DUs by taking the lead
in the conduct of least-cost generation planning in the said areas.

One-hundred eighty (180) days upon the effectivity of this Circular, the
following shall submit to the DOE a report including the assumptions
and results.

4.4.3.1. | The TRANSCO which has responsibility to all the DUs as

defined in Rule 3, Section 3.1 of Department Circular No.
DC2021-11-0039;

4.43.2. Other DUs covered in Rule 3, Section 3.2 of the Department

Circular No. DC2021-11-0039, in the case of the ECs with
off-grid areas, through the NEA; and

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ADOPTING AND INTEGRATING THE POLICIES AND PROGRAMS FOR THE GRADUATION AND RATIONALIZATION

OF THE UNIVERSAL CHARGE FOR MISSIONARY ELECTRIFICATION SUBSIDY PURSUANT TO DEPARTMENT
CIRCULAR NO. DC2019-01-0001

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mw

4.4.4.

4.4.5.

4.46.

4.4.7.

4.4.3.3. Aseparate report of the NPC, MGSP or any entity operating
in off-grid areas for those areas covered in accordance with
Rule 3, Section 3.3 of the Department Circular No. DC2021-
11-0039, indicating the optimal strategy of the RE-based
hybridization of each micro-grid as stated in Section 4.5.6 of
this Circular.

All the DUs with off-grid areas shall consider or incorporate the results
of the least-cost generation planning activity in the preparation of their
individual UC-ME Rationalization Plan as stated in Rule 4 as well as
the updating of their respective DDP and PSPP prior to submission to
the NEA in the case of the ECs.

All the Mandated Participants in Off-grid areas shall source a
percentage of all their energy requirements or supply from the eligible
RE in compliance to the implementation of the Renewable Portfolio
Standard for off-grid areas.

Within six (6) months upon the effectivity of this Circular, the National
Renewable Energy Board shall study a new mechanism on the
provision of cash incentives to RE developers and propose
recommendations to the ERC and the DOE to ensure the efficient,
optimal and sustainable use of RE resources for power and non-power
generation, and the reduction of the TCGR.

Not later than 15" of June of every year, the NPC shall submit to the
DOE a specific program to implement key strategies towards efficiency
improvement and fuel economy of all its power plants. The
implementation of the program shall be included by the NPC into its
MEP submission by January of the following year. For this purpose,
Section 8.3 of the Rule 8 of Department Circular No. DC2019-01-0001
is hereby amended.

4.5. Promotion of Renewable-based Hybrid Micro-Grid Systems.

4.5.1.

The DOE and the NEA, shall jointly or separately formulate and
implement trainings and other similar capacity building activities in
order to enhance the technical capability of the DUs with off-grid areas
to develop embedded RE-based generation projects, to prepare the
Terms of Reference, and to evaluate and select the optimal proposal
for unserved and underserved areas.

The DOE, through the Renewable Energy Management Bureau
(REMB), and in coordination with the NEA, may provide technical
assistance to the DUs in the conduct of RE resource assessment in off-

grid areas, including pre-feasibility study for RE-based Hybrid Micro-
Grid Systems.

The DOE, through the REMB, shall provide technical assistance to the
Mandated Participants under the RPS Off-Grid Rules in simulating
typical off-grid power supply configurations and corresponding techno-

ADOPTING AND INTEGRATING THE POLICIES AND PROGRAMS FOR THE GRADUATION AND RATIONALIZATION

OF THE UNIVERSAL CHARGE FOR MISSIONARY ELECTRIFICATION SUBSIDY PURSUANT TO DEPARTMENT
CIRCULAR NO. DC2019-01-0001

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economic comparisons per off-grid area using any suitable planning
tool.

4.5.4. The NEA shall provide specific financial and technical assistance to the
ECs with off-grid areas in the development and implementation of RE-
based generation projects within their respective franchise area. Such
assistance shall include, but not limited to provision of financial support
in the conduct of pre-feasibility, feasibility and pre-investment studies,
site-specific resource assessment, etc.

4.5.5. The NEA shall also assist the ECs in the financing of RE-based
generation projects to serve the off-grid parts of their franchise areas
such as through the provision of loans, loan guarantees and assistance
to the ECs in accessing commercial sources of funds, among others.

4.5.6. The NPC, in coordination with the concerned DU with off-grid areas,
shall fast-track the conversion and modernization of all its diesel-based
generator sets in pocket islets into a RE-based micro-grid system that
offers optimal hours of services based on the electricity needs in the
said areas.

4.6. New Business Models for RE-based Embedded Generation Projects and
Electrification in Off-grid Areas.

4.6.1. | Within sixty (60) days upon the effectivity of this Circular, the NEA shall
issue a policy instrument for the formulation of new modalities or other
variants of cooperation between the EC with an off-grid area and the
business sector, civil society, local government unit or mandated
government-owned and_ controlled corporation, taking into
consideration whether the EC should remain as a non-stock electric
cooperative or convert to a stock-cooperative or stock corporation on

such cooperation and the limitations imposed by Department Circular
No. DC2018-02-003.

RULE 5. DEMAND-S!IDE MANAGEMENT (DSM) AND ENERGY EFFICIENCY
MEASURES FOR CUSTOMERS IN OFF-GRID AREAS

5.1. Guiding Principles.

5.1.1. The customer-level implementation of energy efficiency programs and
activities shall be the main strategy of this Circular to mitigate the
impacts of the current high cost of generation in off-grid areas and the
implementation of UC-ME subsidy rationalization to the electricity
consumers in off-grid areas currently receiving UC-ME subsidy;

5.1.2. Priority energy efficiency measures shall be those with greatest net
economic benefits to the customers in off-grid areas in terms of costs
and reduction of actual electricity bills.

5.2. Responsibilities for Energy Efficiency Program.

SSS
ADOPTING AND INTEGRATING THE POLICIES AND PROGRAMS FOR THE GRADUATION AND RATIONALIZATION

OF THE UNIVERSAL CHARGE FOR MISSIONARY ELECTRIFICATION SUBSIDY PURSUANT TO DEPARTMENT
CIRCULAR NO. DC2019-01-0001

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5.2.1. The DOE shall identify the DSM programs for the energy sector which
shall be geared towards: (a) reduction of electricity consumption
through effective load management and utilization of energy efficient
equipment; (b) promotion of reduction of energy use through the
adoption of energy efficiency and conservation programs and the
integration of any applicable RE technologies; (c) prevention of power
outages by increasing system reliability and resiliency; and (d)
encouragement to electricity consumers to change behavior to adopt
measures to effect energy consumption and utility load shape in a most
effective and cost competitive manner.

5.2.2. All DUs with off-grid areas and MGSPs shall formulate and implement
their respective energy efficiency program with the main objective of
reducing the cost of electricity tariffs of their captive customers.

5.2.3. The NEA shall be responsible to formulate the guidelines and
procedures to assist the ECs with off-grid areas in implementing DSM
strategies and other energy efficiency measures that are deemed
suitable in their franchise areas. The NEA shall also undertake
capacity building of the said ECs in formulating their respective energy
efficiency programs.

5.2.4. The NEA shall also be responsible to provide financial assistance to
ECs and their respective customers, either in form of grants or
concessional financing, to implement DSM and other energy efficiency
measures that reduce the electricity bills of the off-grid customers.

5.2.5, All customers in off-grid areas are enjoined to implement energy
efficiency measures and participate in DSM and other energy efficiency
programs of their respective DUs or MGSPs.

RULE 6. CUSTOMER-LEVEL RATIONALIZATION OF SUBSIDIES
6.1. General Policies.

6.1.1. The ERC shall pursue a more appropriate tariff mechanism in off-grid
areas that optimizes the recovery of all costs of electricity services from

consumers while taking into consideration the socio-economic
condition in said areas.

6.1.2. As the regulator, the ERC shall have the sole authority to develop and
set a new rate structure that is more appropriate in off-grid areas and
will enable an efficient allocation per customer class.

6.1.3. Those customers that have significant contribution to the demand

requirements shall pay more than the marginal customers of electricity
in the off-grid areas.

ADOPTING AND INTEGRATING THE POLICIES AND PROGRAMS FOR THE GRADUATION AND RATIONALIZATION

OF THE UNIVERSAL CHARGE FOR MISSIONARY ELECTRIFICATION SUBSIDY PURSUANT TO DEPARTMENT
CIRCULAR NO. DC2019-01-0001

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6.1.4. To enable its eligible customers to avail of any subsidy, a DU with an
off-grid area or MGSP shail submit its ERC-approved SAGR or SARR
to the NPC for the allocation of subsidies, either from the UC-ME or
from the Government appropriations.

6.1.5. The DU with an off-grid area or MGSP shall assess the capacity to pay
of their respective customers and apply to the ERC for the approval of
the corresponding SAGR or SARR per level of consumption in
accordance with the DOE-accepted Subsidy Rationalization Plan
outlined under Section 7.2 of this Circular.

6.1.6. All funds of the Government through the annua! General Appropriations
Act including funds from donor institutions or organizations received as
grants, subsidy or donation to finance projects or activities related to
electrification and provision of reliable and resilient electricity services
in off-grid areas shall not be recovered through tariffs being charged to
the electricity consumers in off-grid areas.

6.2. _ Eligibility for UC-ME Subsidy. The following shall be eligible for the UC-ME
subsidy, to wit:

6.2.1. All NPC activities related to missionary electrification, pursuant to
Section 70 of the EPIRA, that are approved by the National Power
Board of Directors in accordance with the policies stated in this
Circular;

6.2.2. Subsidy approved by the ERC as payment to any NPP for the recovery
of its TCGR while maintaining the SAGR charged to the DU and its

customers, in accordance with the ERC-approved PSA or its
equivalent;

6.2.3. Subsidy approved by the ERC as payment to any MGSP with an ERC-
approved MSC and any DU-operated microgrid system; and

6.2.4. Cash generation-based incentive approved by the ERC to be paid to
any qualified registered RE developers.

6.3. Department Circular No. DC2019-01-0001 is hereby further qualified to mean
that non-technical system losses including pilferage shall not be entitled for
cost recovery through UC-ME subsidy.

RULE 7. UC-ME RATIONALIZATION PLAN

7.1. General Principles and Strategies

7.1.1. The graduation of an off-grid area from the UC-ME will be realized
readily through its interconnection to the Grid.

7.1.2. The DU with off-grid areas shall endeavor to design all its procurement
activities to ensure the entry of low-cost and efficient generation

ADOPTING AND INTEGRATING THE POLICIES AND PROGRAMS FOR THE GRADUATION AND RATIONALIZATION

OF THE UNIVERSAL CHARGE FOR MISSIONARY ELECTRIFICATION SUBSIDY PURSUANT TO DEPARTMENT
CIRCULAR NO. DC2019-01-0001

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7.2.

7.3.

7.4.

technologies including renewables as well as baseload technologies as
alternatives to existing diesel and bunker fuel systems.

7.1.3. To achieve greater recovery of generation costs, this Circular shall
pursue a new regulatory mechanism that allows for the differentiation
of SAGR being collected to various customers according to demand,
level of consumption, customer classification, and socio-economic
conditions of the area.

7.1.4. The DU with off-grid areas and MGSP shall ensure that any subsidy
reduction scheme shall be supported by energy efficiency programs
and other mitigating measures in order to cushion and reduce the
potential effects of subsidy rationalization to the consumer.

Formulation of UC-ME Rationalization and Graduation Plan. The NEA, in
coordination and with the assistance of any association of DUs and ECs with
off-grid areas, the NPC and the TRANSCO, shall enjoin each EC with an off-
grid area receiving UC-ME subsidy to prepare its own 10-year Graduation and
Rationalization Plan indicating the socially-acceptable reduction and/or phase
out of UC-ME subsidy and shall be fully reviewed and updated every 3 years.
Optional annual update may be advised by an EC and the NEA. The
Graduation and Rationalization Plan shall form part of the DDP and the PSPP

to be submitted to the DOE. The Graduation and Rationalization Plan shall
specify the following:

7.2.1. Schedule of Interconnection Plan, if any, in order to indicate the full
graduation of the area from the UC-ME subsidy;

7.2.2. 10-year Optimal Power Supply Outlook, indicating gradual reduction of
the TCGR through procurement of low-cost and advanced
technologies;

7.2.3. DSM and Energy Efficiency Program, outlining the potential electricity
bill reduction to each type of customer;

7.2.4. Customer-level subsidy reduction or phase-out in accordance with the
Rule 6 of this Circular;

7.2.5. Projected Rate Adjustments and UC-ME subsidy reduction per area;
and

7.2.6. Compliance and Impact Mitigation Plans.

The DUs with off-grid areas and the MGSPs in coordination with the Local
Government Units, shall develop their Rationalization Plan to indicate their
energy efficiency strategies and activities to reduce the UC-ME subsidy to be
submitted to the DOE, in case of the ECs, through the NEA.

The NEA shall collaborate with the TRANSCO and the NPC to review the
individual UC-ME Graduation and Rationalization Plans of the DUs with an
off-grid area. After the review, the NEA shall consolidate the individual plans
and submit the Integrated UC-ME Graduation and Rationalization Plan to the
DOE for the updating of the Missionary Electrification Development Plan in
line with Section 7.2 of this Circular.

ADOPTING AND INTEGRATING THE POLICIES AND PROGRAMS FOR THE GRADUATION AND RATIONALIZATION

OF THE UNIVERSAL CHARGE FOR MISSIONARY ELECTRIFICATION SUBSIDY PURSUANT TO DEPARTMENT
CIRCULAR NO. DC2019-01-0001
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.

7.5. The NEA shall endorse to the DOE both the individual and integrated UC-ME
Graduation and Rationalization Plans of all the ECs with off-grid areas to the
DOE in time with the annual submission of DDP and PSPP. As part of its
submission, the NEA shall evaluate and recommend the timeline of achieving
the following milestones for each EC with an off-grid area whenever
applicable:

7.5.1. The most feasible schedule of the interconnection of an off-grid area
into the Grid;

7.5.2. The recommended period for the attainment of parity between TCGR
and effective SAGR of each off-grid area according to its present socio-
economic conditions and future development outlook; and

7.5.3. The most feasible schedule in providing least cost electricity services
in the off-grid areas by the EC.

7.6. The DOE shall provide the Integrated UC-ME Rationalization and
Development Plan to the ERC and the NPC for their information and
reference.

7.7. In accordance to Section 14(a) of the Microgrid Act, the NPC shall prepare
and execute an NPC Graduation Plan.

7.8. Implementation Procedure.

7.8.1. Consistent with the DOE-accepted subsidy rationalization plan, a DU
with off-grid areas shall petition individually or collectively with other
similarly situated DUs to the ERC for the approval of its SAGR
adjustments.

7.8.2. The DU with off-grid areas shall provide the NPC a copy of its approved
SAGR for the determination of UC-ME subsidy requirements and
allocations.

7.8.3. The MGSPs and the DU-operated microgrid systems in off-grid areas
having the ERC approval to receive UC-ME subsidy shall also prepare
their respective Rationalization Plan. The same shall be incorporated
by the concerned DU in its overall Rationalization Plan.

7.8.4. The DU with off-grid areas, with assistance from the NEA, the NPC and
the TRANSCO, shall conduct an Information Education and
Communication Program to educate the electricity end-users in off-grid
areas of its UC-ME Graduation and Rationalization Plan.

7.8.5. The NEA, in coordination with the ECs with off-grid areas, shall submit
to the DOE, copy furnished the ERC, an end-year assessment report
on the status and results of the implementation of the UC-ME
Graduation and Rationalization Plan.

RULE 8. MONITORING OF UC-ME SUBSIDY

8.1. Monitoring of UC-ME Subsidy. The reporting of rates and subsidies are as
follows:

ADOPTING AND INTEGRATING THE POLICIES AND PROGRAMS FOR THE GRADUATION AND RATIONALIZATION

OF THE UNIVERSAL CHARGE FOR MISSIONARY ELECTRIFICATION SUBSIDY PURSUANT TO DEPARTMENT
CIRCULAR NO. DC2019-01-0001 he
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8.1.1. Each NPP shall submit a monthly report to the NPC and its off-taker
DU containing the monthly computation of its TCGR based on the ERC-
approved PSA.

8.1.2. The MGSPs shall submit a monthly report to the NPC of its UC-ME
requirements. .

8.1.3. Pursuant to Section 3(f) of Rule 13 of EPIRA-IRR, the NPC shall submit
a semi-annual report to the PSALM detailing the utilization of the UC-
ME subsidy and disbursement to eligible areas and entities in the last
six (6) months and the projected estimates in the next (6) months, using
an appropriate template.

8.1.4. Copy of the above reports shall be provided to the DOE, the
Department of Finance (DOF), the ERC and the NEA for reference.

8.1.5. The PSALM shall submit to the DOE, the DOF and the ERC the status
of the remittances and disbursement of UC-ME subsidy on a quarterly
basis.

RULE 9. REGULATORY SUPPORT AND OTHER PROVISIONS

9.1. The ERC shall issue the appropriate Rules governing the procedure for the
filing and evaluation of an application for the approval of the SAGR or SARR,
to be undertaken by the DUs with off-grid areas in accordance with Section
6.1.5 of this Circular and the DOE-accepted Subsidy Rationalization Plan, and

the UC-ME subsidy petitioned by the NPC in accordance with Section 6.2 of
this Circular.

9.2. |The ERC shall be responsible for setting the SAGR or SARR adjustments.
The ERC shall likewise hear, review and decide applications for the approval
of proposed interconnection projects of off-grid areas to the Grid in
accordance with the individual UC-ME Rationalization and Graduation Plan of

the DU, in accordance with that which was submitted to and accepted by the
DOE.

9.3. The ERC may issue other appropriate regulatory rules, guidelines or
measures to implement the policies and programs stated in this Circular.

RULE 10. TRANSITORY PROVISION

10.1. All PSAs and QTP Service Contracts that have been procured and executed,
including those that have been filed and pending before the ERC, prior to this
Circular shall be honored and recognized until their expiration.

RULE 11. SEPARABILITY CLAUSE

11.1. If, for any reason, any provision of this Circular is declared unconstitutional or

invalid, the other parts of provisions hereof which are not affected thereby
shall continue to be in full force and effect.

ADOPTING AND INTEGRATING THE POLICIES AND PROGRAMS FOR THE GRADUATION AND RATIONALIZATION
OF THE UNIVERSAL CHARGE FOR MISSIONARY ELECTRIFICATION SUBSIDY PURSUANT TO DEPARTMENT 7
CIRCULAR NO. DC2019-01-0001 mr
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RULE 12. REPEALING CLAUSE

12.1. Any Department Circular or issuance, contrary or inconsistent with this
Circular is hereby repealed, modified or amended accordingly.

12.2. Nothing in this Circular shall be construed to affect any vested rights acquired
from institutions or mechanisms existing prior to this Circular.

RULE 13. EFFECTIVITY

13.1. This Circular shall take effect fifteen (15) days after its publication in at least
two (2) newspapers of general circulation. Copies thereof shall be filed with

the University of the Philippines Law Center — Office of National Administrative
Register (UPLC-ONAR).

Signed this day of 2022 at the Department of Energy, Energy Center,
Bonifacio Global City, Taguig City, Metro Manila.

OE

wai
MAY24 2022

ADOPTING AND INTEGRATING THE POLICIES AND PROGRAMS FOR THE GRADUATION AND RATIONALIZATION
OF THE UNIVERSAL CHARGE FOR MISSIONARY ELECTRIFICATION SUBSIDY PURSUANT TO DEPARTMENT
CIRCULAR NO. DC2019-01-0001
P -

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ANNEX A.

In reference to the Chapter 11 of Transmission Development Plan (TDP) 2022-2040',
the below list of Indicative and Potential Interconnection Projects are as follows:

Project Name Distribution Utility Senate ition | Remarks |

Batangas-Mindoro Oriental Mindoro Feb 2026 Filed to ERC
Interconnection Electric Cooperative,
- _

Inc. (ORMECO) and
Occidental Mindoro
Electric Cooperative,
Inc. (OMECO
Oriental! Mindoro
Electric Cooperative,
Inc. (ORMECO),
Occidental Mindoro
Electric Cooperative,
Inc. (OMECO), and
Palawan Electric
Cooperative (PALECO
Marinduque Electric Dec 2025 Filed to ERC
Cooperative, Inc.
MARELCO
Camarines Sur — First Catanduanes Dec 2025
Catanduanes 69kV Electric Cooperative,
Interconnection Inc. (FICELCO
Zamboanga-Basilan __| Basilan Electric eee P|
69kV Interconnection | Cooperative, Inc.
BASELCO
Ticao Island Ticao Island Electric For further study
TISELCO
Masbate Island Masbate Electric For further study
Interconnection Cooperative, Inc.
MASELCO
Tablas Island Tablas tsland Electric For further study
Interconnection Cooperative, Inc. a
TIELCO
Interconnection Cooperative, Inc.
LUBELCO
Busuanga Island Busuanga Island For further study
Interconnection Electric Cooperative,
Inc. (BISELCO
Bantayan Island Bantayan Island peur
Interconnection Electric Cooperative,
inc. (BISELCO
Siquijor Province of Siquijor For further study
Interconnection Electric Cooperative,
Inc. (PROSIELCO
Camotes Island Camotes Electric  ffetamersney
Interconnection Cooperative, Inc.
CELCO

1 Transmission Development Plan (TDP) 2022-2040. Chapter 11 — Island Interconnection. Page 143-158

Palawan—Mindoro
Interconnection

Quezon — Marinduque
69kV Interconnection

=== dc2022-05-0016-pages-19.ppm ===
interconnection Cooperative, Inc.
ANTECO
Dinagat Isiand Dinagat Island Electric For further study
Interconnection Cooperative, Inc.
DIELCO
Siasi Island Siasi Electric po [eee
Interconnection Cooperative, Inc.
SIASELCO
Sulu Island Sulu Electric For further study
Interconnection Cooperative, Inc.
SULECO
Tawi-Tawi Tawi-tawi Electric For further study
Interconnection Cooperative, Inc.
TAWELCO