# DC2012-11-0010 — Providing for Additional Guidelines and Implementing Policies for Retail Competition and Open Access and Amending Department Circular No. (DC) 2012-05-0005 ## Department Circular No. DC2012-11-0010 Signed: 28 November 2012 by DOE Secretary Carlos Jericho L. Petilla Effectivity: Fifteen (15) days following publication in at least two (2) newspapers of general circulation --- ## WHEREAS RECITALS 1. EPIRA Section 37 mandates DOE to supervise the restructuring of the electric power industry, formulate rules and regulations to implement EPIRA objectives, and exercise such other powers as may be necessary or incidental to attain EPIRA's objectives. 2. On 6 June 2011, ERC certified fulfillment of the five pre-conditions for RCOA implementation under EPIRA Section 31: 1. Establishment of the WESM — commercial operation started in Luzon on 26 June 2006, with the Visayas Grid integrated on 26 December 2010; 2. Approval of unbundled transmission and distribution wheeling charges — ERC approved unbundled rates of NPC on 26 March 2002, including TRANSCO's transmission tariffs and NPC's generation tariffs, and has rendered decisions unbundling distribution utilities' wheeling charges; 3. Initial implementation of the cross-subsidy removal scheme — NPC and TRANSCO have completely removed inter- and intra-grid cross-subsidies since 2002, and almost all DUs have completed their cross-subsidy removal process; 4. Privatization of at least 70% of NPC's total generating capacity in Luzon and Visayas — PSALM privatized 19 power plants totaling 3,222 MW, equivalent to 79.56% of NPC's total generating capacity in Luzon and Visayas; 5. Transfer of management and control of at least 70% of the total energy output of NPC-contracted power plants to IPP Administrators — PSALM bid out 3,345.75 MW of NPC-contracted energy output (proceeds of US$3,228.00 million), equivalent to 76.85% of total NPC-IPP contracted energy output in Luzon and Visayas. 3. On 17 June 2011, DOE issued DC2011-06-0006 creating the RCOA Steering Committee (RCOA-SC), tasked among others to provide the transition framework for RCOA implementation and to synchronize preparatory actions ensuring the sufficiency of existing rules, infrastructure, and institutional requirements needed to achieve EPIRA's goals. 4. The RCOA-SC and its Technical Working Groups (TWG) conducted meetings and consultations with electric power industry stakeholders and government agencies to identify attendant issues and assess readiness for RCOA implementation. 5. Following its deliberations, the RCOA-SC resolved to endorse to DOE: (a) deferring the Open Access Date to 26 December 2012; (b) integrating RCOA into the WESM; (c) appointing the Philippine Electricity Market Corporation (PEMC) as the Central Registration Body (CRB); and (d) defining specific policies to operationalize RCOA concepts such as customer empowerment/choice, the business of electricity supply, Supplier, Supplier of Last Resort (SOLR), and WESM membership. 6. On 24 February 2012, DC2012-02-0002 appointed PEMC as CRB. 7. DOE, in consultation with stakeholders and ERC, issued DC2012-05-0005 on 9 May 2012, entitled "Prescribing the General Policies for the Implementation of Retail Competition and Open Access." 8. DOE, jointly with the RCOA-SC and ERC, conducted a further round of public consultations and focused group discussions with stakeholders on developing RCOA's implementing rules and regulations, to provide stakeholders sufficient time to prepare for the transition to the RCOA regime. Consultations were held on: 18 July 2012 (MERALCO, VECO); 19 July 2012 (BATELEC II, CEBECO I, CEBECO II, PHILRECA); 31 July 2012, Waterfront Hotel, Cebu City (Contestable Customers, Generation Companies, and DUs in the Visayas Grid); 16 August 2012, Holiday Inn Clark, Pampanga (Contestable Customers, Generation Companies, and DUs in the Luzon Grid); 23 August 2012, DOE Headquarters (government entities certified as Contestable Customers by ERC); 3 September 2012, DOE Headquarters (Retail Electricity Suppliers' Association and Suppliers); 4 September 2012, Legend Hotel, Mandaluyong City (Contestable Customers); 5 September 2012, PEZA, Roxas Boulevard, Pasay City (PEZA Economic Zone Locators); and 5 September 2012, Legend Hotel, Mandaluyong City (Directly Connected Customers). 9. As a result of these consultations, DOE, jointly with ERC, PEMC, and the RCOA-SC, resolved to introduce additional policies and guidelines and to amend DC2012-05-0005. --- ## OPERATIVE PROVISIONS **Section 1. Declaration of Policy.** Consistent with EPIRA Section 2, this Circular reiterates the following policies as relevant to RCOA implementation: (a) ensuring quality, reliability, security, and affordability of electric power supply; (b) ensuring fair and non-discriminatory treatment of public and private sector entities in restructuring the electric power industry; (c) assuring socially and environmentally compatible energy sources and infrastructure; (d) ensuring transparent and reasonable electricity prices in a regime of free and fair competition and full public accountability, to achieve greater operational and economic efficiency, promote consumer choice, and enhance the competitiveness of Philippine products in the global market; (e) protecting the public interest as affected by the rates and services of electric utilities and other electric power providers; and (f) encouraging the efficient use of energy and other Demand Side Management (DSM) modalities. **Section 2. Objectives.** This Circular is issued with the following objectives: (a) ensure smooth transition to the RCOA regime through transparent and reasonable rules and procedures for all sectors of the electric power industry; (b) foster competition in the power generation and supply businesses while empowering electricity end-users; (c) clearly define the respective responsibilities of each person or entity in RCOA implementation; (d) ensure RCOA does not result in diminution of service, including transparency in electricity fees and charges; and (e) ensure protection of electricity end-users, particularly those with no power to choose their electricity suppliers. **Section 3. Coverage.** This Circular governs the framework for RCOA, including the responsibilities of Electric Power Industry Participants and governmental authorities, including but not limited to DOE, ERC, PEMC, the National Electrification Administration (NEA), the National Grid Corporation of the Philippines (NGCP), and Distribution Utilities (DUs). **Section 4. Amendments to Section 2 of DC2012-05-0005.** 4.1. The following definitions in Section 2 of DC2012-05-0005 are amended: - **"Directly Connected Customers"** refer to industrial or bulk electricity end-users directly supplied with electricity by a Generation Company or the Power Sector Assets and Liabilities Management Corporation (PSALM) or NPC, pursuant to Republic Act No. 6395 as amended by Presidential Decree No. 395. - **"Last Resort Supply Event"** refers to an event when a supplier of a Contestable Customer has defaulted on its obligations or fails to provide electricity based on the following reasons: (i) cessation of its operation; (ii) revocation of its license; (iii) non-payment of transmission and distribution services; (iv) suspension of its membership in the WESM due to non-compliance with WESM Rules and retail market rules to be promulgated consistent with this Circular; and (v) such other grounds as may be specified by ERC. 4.2. A new definition is added to Section 2 of DC2012-05-0005: - **"Local Supplier"** refers to the non-regulated supply business of a Distribution Utility (DU) catering to Contestable Customers within its franchise area, duly authorized by ERC. This includes the Philippine Economic Zone Authority (PEZA) and PEZA-accredited Utility Ecozone Enterprises in public and private Economic Zones (EZs). 4.3. All other terms defined under DC2012-05-0005 and other related rules and regulations retain the same meaning insofar as they are not inconsistent with this Circular. **Section 5. Responsibilities of Energy Agencies and Stakeholders.** Consistent with EPIRA and its IRR, the following agencies and stakeholders have the following RCOA-implementation responsibilities: (a) **ERC** — in exercising its mandate to promote competition, encourage market development, ensure customer choice, and penalize abuse of market power: (i) declare the Open Access Date; (ii) establish and approve a methodology for setting transmission and distribution wheeling rates and retail rates for a DU's Captive Market; (iii) prescribe qualifications and evaluate applications for supply of electricity to the Contestable Market, issuing licenses to suppliers, metering service providers, and other service providers as needed; (iv) upon initial RCOA implementation, specify the Contestable Market through Certificates of Contestability to end-users with an average 12-month peak demand of 1 MW and above; (v) evaluate market performance and gradually reduce the Contestable Market threshold until it reaches the household demand level; (vi) determine mechanisms to mitigate the impact of Contestable Customer migration on a DU's Captive Market operations; (vii) ensure customer choice, promote competition, and discourage/penalize abuse of market power, cartelization, and anti-competitive or discriminatory behavior; and (viii) provide regulatory support on recovery of investments needed for effective RCOA implementation. (b) **PEMC** — as the designated CRB, performs its mandate pursuant to DC2012-02-0002 (24 February 2012). (c) **NGCP** — as Concessionaire of the National Transmission Company: (i) abides by the ERC-approved methodology for transmission wheeling rates; (ii) as System Operator, provides open and non-discriminatory transmission system access to all electricity users; and (iii) ensures transmission system reliability and adequacy for RCOA requirements. (d) **NEA** — pursuant to EPIRA Section 58 and EPIRA-IRR Rule 3, Section 3: (i) prepares Electric Cooperatives (ECs) for the RCOA regime with technical, financial, and institutional support; (ii) assists ECs in educating member-consumers about RCOA's implementation and impact; and (iii) develops mitigating measures addressing impacts on EC operations and viability from Contestable Customer migration. (e) **DUs** — (i) provide open and non-discriminatory distribution system access to all electricity end-users, including suppliers; (ii) ensure distribution system reliability and adequacy for RCOA requirements; (iii) ensure least-cost supply to end-users and transparency in rates and charges for regulated and competitive services; (iv) perform the default Metering Service Provider (MSP) role and ensure compliance with WESM Rules and Retail Rules to be promulgated by DOE; (v) provide Contestable Customers, 45 days prior to the Open Access Date, load profile data and other pertinent information to assist in negotiating supply contracts; (vi) continuously review and update the Distribution Development Plan (DDP) and prepare investments for RCOA requirements; (vii) notify ERC of intent to recover stranded contract costs with supporting estimates; and (viii) conduct regular Information and Education Campaigns for end-users, particularly Captive Customers, on RCOA and its impact. **Section 6. Transition to RCOA Implementation and Timelines.** A Transition Period of six (6) months shall be observed from the Open Access Date declared by ERC. During the Transition Period: (a) the DU continues to serve Contestable Customers in its franchise area; (b) Contestable Customers may negotiate and enter supply contracts with Suppliers, provided such contracts take effect only at the end of the Transition Period (the day immediately following the sixth month from the Open Access Date); (c) ERC continues evaluating and issuing Certificates of Contestability to eligible Contestable Customers; (d) ERC identifies DUs to act as SOLR in areas where franchised DUs are deemed incapable of performing that role; (e) the CRB begins registering Contestable Customers and Suppliers and conducts training for RCOA participants; (f) the CRB conducts trial operations including mock settlements; and (g) DOE spearheads a comprehensive Information and Education Campaign for all stakeholders on RCOA and its implementation. After the Transition Period and pursuant to Transitory Rules to be promulgated by ERC, the "Full RCOA Commercial Operation Date" takes effect. **Section 7. Mandatory Contestability and Customer Choice.** Consistent with EPIRA, RCOA promotes genuine competition, greater efficiency, customer choice, and the true cost of electricity. Contestable Customers are given the power of choice, subject to the rules prescribed herein and subsequent DOE issuances. A Contestable Customer may source its electricity supply from a Supplier duly licensed by ERC, a Local Supplier duly authorized by ERC, or through the WESM directly — in which case the Contestable Customer manages its own WESM registration, compliance, and risk. As a general policy, a Contestable Customer may have one Supplier per Metering Point, and thus may have several contracted Suppliers based on the number of its Metering Points; multiple supply contracts under a single Metering Point are allowed if consistent with this Circular, the Retail Rules to be promulgated by DOE, and ERC rules and regulations. **Section 8. Supply Contract and Customer Switching.** After the Transition Period and during the initial year of the Full RCOA Commercial Operation Date, Contestable Customers must have supply contracts with a minimum term of one (1) year with a Supplier, but may switch to a new supplier six (6) months after the Full RCOA Commercial Operation Date, provided outstanding obligations between the parties are fully settled. One year after the Full RCOA Commercial Operation Date, Contestable Customers and Suppliers have flexibility on supply contract duration and shall undertake switching consistent with the Retail Rules to be promulgated by DOE and the CRB's manual of procedures. Switching takes effect at the beginning of the WESM billing month; formal notification to the CRB of intent to switch must be given at least one (1) month prior to the switching date. Suppliers must provide DOE, ERC, and the CRB copies of their supply contracts for monitoring, policy development, and rule formulation. For 45 days prior to the Open Access Date, Suppliers must submit to the CRB, for posting on its website, contracting parameters including general offer terms and conditions, indicative average contract price offers, and scope of services offered. **Section 9. Directly Connected Customers.** Existing Directly Connected Customers, regardless of their average peak demand for the last 12 months from this Circular's effective date, must register with PEMC as a Direct or Indirect Customer Trading Participant in the WESM. Existing supply contracts between Directly Connected Customers and Generators prior to the Open Access Date are not affected by RCOA implementation, and there shall be no diminution of services. All Directly Connected Customers are considered Contestable Customers and must secure a Certificate of Contestability from ERC. A Directly Connected Customer may secure additional energy requirements from an ERC-licensed Supplier to supplement its current contract with a power generator, and may thus have both a supply contract with a WESM-registered power generator and a Supplier of electricity. **Section 10. Role of Embedded Generation.** PEMC registers embedded generators in accordance with WESM Rules and relevant market manuals. Subject to the most beneficial arrangement, the policy for embedded generation is developed by DOE in coordination with relevant stakeholders, as part of government efforts to make any supply available in the grid. DOE shall endeavor to develop policies and programs encouraging Demand Response in coordination with ERC and industry stakeholders. **Section 11. Supplier of Last Resort (SOLR).** Where a Supplier cannot perform its obligations to Contestable Customers consistent with this Circular, the franchised DU acts as SOLR in a Last Resort Supply Event as defined herein. Should the franchised DU be deemed incapable of performing the SOLR service, ERC, prior to the Full RCOA Commercial Operation Date, shall designate another DU to perform the SOLR function for affected Contestable Customers. The SOLR may source electricity through the WESM or any available energy supply source, and may recover costs attributable to its SOLR services. ERC shall design a mechanism to prevent Last Resort Supply Events, which may include adequate due diligence on technical and financial capability and other parameters used in issuing Supplier Licenses. The CRB shall issue timely notification of Suppliers' compliance with prudential requirements pursuant to the WESM Rules. **Section 12. Government Entities as Contestable Customers.** DOE, in coordination with the Government Procurement Policy Board (GPPB) and the Department of Budget and Management (DBM), shall issue supplementary rules on procurement of electricity supply under the RCOA regime for government entities considered Contestable Customers. Prior to the Open Access Date, DOE, DBM, and GPPB shall issue a step-by-step procedure to guide government entities considered Contestable Customers. As a general rule, all Government Entities that are either Contestable Customers or Directly Connected Customers must comply with EPIRA and EPIRA-IRR requirements. **Section 13. Separability Clause.** If any section or provision of this Circular is declared invalid, the other parts or provisions not affected thereby remain in full force and effect. **Section 14. Repealing Clause.** Except insofar as manifestly inconsistent herewith, nothing in this Circular shall be construed to repeal any mechanisms already existing or responsibilities already provided for under existing rules. **Section 15. Effectivity.** This Circular takes effect fifteen (15) days following its publication in at least two (2) newspapers of general circulation. Issued on 28 November 2012, in Energy Center, Bonifacio Global City, Taguig City. **CARLOS JERICHO L. PETILLA** Secretary, Department of Energy