Republic act no 9136 (2001)

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Republic act no 9136 (2001)

  1. 1. Republic Act No 9136AN ACTORDAINING REFORMS IN THE ELECTRICPOWER INDUSTRY, AMENDING FOR THEPURPOSE CERTAIN LAWS AND FOR OTHERPURPOSESCHAPTER ITITLE AND DECLARATION OF POLICYSECTION 1. Short Title. – This Act shall be known asthe “Electric Power Industry Reform Act of 2001”. Itshall hereinafter be referred to as the “Act”.SECTION 2. Declaration of Policy. – It is herebydeclared the policy of the State:(a) To ensure and accelerate the total electrificationof the country;(b) To ensure the quality, reliability, security andaffordability of the supply of electric power;(c) To ensure transparent and reasonable prices ofelectricity in a regime of free and fair competitionand full public accountability to achieve greateroperational and economic efficiency and enhancethe competitiveness of Philippine products in theglobal market;(d) To enhance the inflow of private capital andbroaden the ownership base of the powergeneration, transmission and distribution
  2. 2. sectors;(e) To ensure fair and non-discriminatory treatmentof public and private sector entities in theprocess of restructuring the electric powerindustry;(f) To protect the public interest as it is affected bythe rates and services of electric utilities andother providers of electric power;(g) To assure socially and environmentallycompatible energy sources and infrastructure;(h) To promote the utilization of indigenous and newand renewable energy resources in powergeneration in order to reduce dependence onimported energy;(i) To provide for an orderly and transparentprivatization of the assets and liabilities of theNational Power Corporation (NPC);(j) To establish a strong and purely independentregulatory body and system to ensure consumerprotection and enhance the competitive operationof the electricity market; and(k) To encourage the efficient use of energy andother modalities of demand side management.SEC. 3. Scope. – This Act shall provide a frameworkfor the restructuring of the electric power industry,including the privatization of the assets of NPC, thetransition to the desired competitive structure, and thedefinition of the responsibilities of the various
  3. 3. government agencies and private entities.SEC. 4. Definition of Terms. –(a) “Aggregator” refers to a person or entity, engagedin consolidating electric power demand of end-users in the contestable market, for the purposeof purchasing and reselling electricity on a groupbasis;(b) “Ancillary Services” refer to those services thatare necessary to support the transmission ofcapacity and energy from resources to loadswhile maintaining reliable operation of thetransmission system in accordance with goodutility practice and the Grid Code to be adoptedin accordance with this Act;(c) “Captive Market” refers to electricity end-userswho do not have the choice of a supplier ofelectricity, as may be determined by the EnergyRegulatory Commission (ERC) in accordancewith this Act;(d) “Central Dispatch” refers to the process of issuingdirect instructions to electric power industryparticipants by the grid operator to achieve theeconomic operation and maintenance of quality,stability, reliability and security of thetransmission system;(e) “Co-Generation Facility” refers to a facility whichproduces electrical an/or mechanical energy andforms of useful thermal energy such as heat orsteam which are used for industrial commercialheating or cooling purposes through the
  4. 4. sequential use of energy;(f) “Commission” refers to the decision-making bodyof the ERC composed of a Chairman and four (4)members as provided under Section 38 hereof;(g) “Concession Contract” refers to the award by thegovernment to a qualified private entity of theresponsibility for financing, operating,expanding, maintaining and managing specificGovernment-owned assets;(h) “Contestable Market” refers to the electricityend-users who have a choice of a supplier ofelectricity, as may be determined by the ERC inaccordance with this Act;(i) “Customer Service Charge” refers to thecomponent in the retail rate intended for the costrecovery of customer-related services including,but not limited to, meter reading, billingadministration and collection;(j) “Demand Side Management” refers to measuresundertaken by distribution utilities to encourageend-users in the proper management of theirload to achieve efficiency in the utilization offixed infrastructures in the system;(k) “Department of Energy” or “DOE” refers to thegovernment agency created pursuant to RepublicAct No. 7638 whose expanded functions areprovided herein;(l) “Department of Finance” or “DOF” refers to thegovernment agency created pursuant to
  5. 5. Executive Order No. 127;(m) “Distribution Code” refers to a compilation ofrules and regulations governing electric utilitiesin the operation and maintenance of theirdistribution systems which includes, amongothers, the standards for service andperformance, and defines and establishes therelationship of the distribution systems with thefacilities or installations of the parties connectedthereto;(n) “Distribution of Electricity” refers to theconveyance of electric power by a distributionutility through its distribution system pursuantto the provisions of this Act;(o) “Distribution System” refers to the system ofwires and associated facilities belonging to afranchised distribution utility extending betweenthe delivery points on the transmission orsubtransmission system or generator connectionand the point of connection to the premises of theend-user;(p) “Distribution Wheeling Charge” refers to the costor charge regulated by the ERC for the use of adistribution system and/or the availment ofrelated services;(q) “Distribution Utility” refers to any electriccooperative, private corporation, government-owned utility or existing local government unitwhich has an exclusive franchise to operate adistribution system in accordance with this Act;
  6. 6. (r) “Electric cooperative” refers to a distributionutility organized pursuant to Presidential DecreeNo. 269, as amended, or as otherwise provided inthis Act;(s) “Electric Power Industry Participant” refers toany person or entity engaged in the generation,transmission, distribution or supply of electricity;(t) “End-user” refers to any person or entityrequiring the supply and delivery of electricityfor its own use;(u) “Energy Regulatory Board” or “ERB” refers to theindependent, quasi-judicial regulatory bodycreated under Executive Order No. 172, asamended;(v) “Energy Regulatory Commission” or “ERC” refersto the regulatory agency created herein;(w) “Franchise Area” refers to a geographical areaexclusively assigned or granted to a distributionutility for distribution of electricity;(x) “Generation Company” refers to any person orentity authorized by the ERC to operate facilitiesused in the generation of electricity;(y) “Generation of Electricity” refers to theproduction of electricity by a generation companyor a co-generation facility pursuant to theprovisions of this Act;(z) “Grid” refers to the high voltage backbone systemof interconnected transmission lines, substations
  7. 7. and related facilities;(aa) “Grid Code” refers to the set of rules andregulations governing the safe and reliableoperation, maintenance and development of thehigh voltage backbone transmission system andits related facilities;(bb) “Independent Power Producer” or “IPP” refers toan existing power generating entity which is notowned by NPC;(cc) “Inter-Class Cross Subsidy” refers to an amountcharged by distribution utilities to industrial andcommercial end-users as well as to othersubsidizing customer sectors in order to reduceelectricity rates of other customer sectors such asthe residential end-users, hospitals, andstreetlights;(dd) “Inter-Regional Grid Cross Subsidy” refers to anamount embedded in the electricity rates of NPCcharged to its customers located in a viableregional grid in order to reduce the electricityrates in a less viable regional grid;(ee) “Intra-Regional Grid Cross Subsidy” refers to anamount embedded in the electricity rates of NPCcharged to distribution utilities and non-utilitieswith higher load factor and/or delivery voltage inorder to reduce the electricity rates charged todistribution utilities with lower load factorand/or delivery voltage located in the sameregional grid;(ff) “IPP Administrator” refers to qualified
  8. 8. independent entities appointed by PSALMCorporation who shall administer, conserve andmanage the contracted energy output of NPC IPPcontracts;(gg) “Isolated Distribution System” refers to thebackbone system of wires and associatedfacilities not directly connected to the nationaltransmission system;(ii) “Lifeline Rate” refers to the subsidized rate givento low-income captive market end-users whocannot afford to pay at full cost;(jj) “National Electrification Administration” or“NEA” refers to the government agency createdunder Presidential Decree No. 269, as amended,and whose additional mandate is further setforth herein;(kk) “National Power Corporation” or “NPC” refers tothe government corporation created underRepublic Act No. 6395, as amended;(ll) “National Transmission Corporation” or“TRANSCO” refers to the corporation organizedpursuant to this Act to acquire all thetransmission assets of the NPC;(mm) “Open Access” refers to the system of allowingany qualified person the use of transmission,and/or distribution system, and associatedfacilities subject to the payment of transmissionand/or distribution retail wheeling rates dulyapproved by the ERC;
  9. 9. (nn) “Philippine Energy Plan” or “PEP” refers to theoverall energy program formulated and updatedyearly by the DOE and submitted to Congresspursuant to Republic Act No. 7638;(oo) “Power Development Program” or “PDP” refers tothe indicative plan for managing electricitydemand through energy-efficient programs andfor the upgrading, expansion, rehabilitation,repair and maintenance of power generation andtransmission facilities, formulated and updatedyearly by the DOE in coordination with thegeneration, transmission and distribution utilitycompanies;(pp) “Power Sector Assets and LiabilitiesManagement Corporation” or “PSALM Corp.”refers to the corporation created pursuant toSection 49 hereof;(qq) “Privatization” refers to the sale, disposition,change and transfer of ownership and control ofassets and IPP contracts from the Government ora government corporation to a private person orentity;(rr) “Renewable Energy Resources” refers to energyresources that do not have an upper limit on thetotal quantity to be used. Such resources arerenewable on a regular basis and the renewablerate is rapid enough to consider availability overan indefinite time. These include, among others,biomass, solar, wind, hydro and ocean energy;(ss) “Restructuring” refers to the process ofreorganizing the electric power industry in order
  10. 10. to introduce higher efficiency, greater innovationand end-user choice. It shall be understood ascovering a range of alternatives enhancingexposure of the industry to competitive marketforces;(tt) “Retail Rate” refers to the total price paid byend-users consisting of the charges forgeneration, transmission and related ancillaryservices, distribution, supply and other relatedcharges for electric service;(uu) “Small Power Utilities Group” or “SPUG” refersto the functional unit of NPC created to pursuemissionary electrification function;(vv) “Stranded contract costs of NPC or distributionutility” refer to the excess of the contracted costof electricity under eligible contracts over theactual selling price of the contracted energyoutput of such contracts in the market. Suchcontracts shall have been approved by the ERBas of December 31, 2000;(ww) “Stranded Debts of NPC” refer to any unpaidfinancial obligations of NPC which have not beenliquidated by the proceeds from the sales andprivatization of NPC assets;(xx) “Subtransmission Assets” refer to the facilitiesrelated to the power delivery service below thetransmission voltages and based on thefunctional assignment of assets including, butnot limited to step-down transformers used solelyby load customers, associatedswitchyard/substation, control and protective
  11. 11. equipment, reactive compensation equipment toimprove customer power factor, overhead lines,and the land such facilities/equipment arelocated. These include NPC assets linking thetransmission system and the distribution systemwhich are neither classified as generation nortransmission;(yy) “Supplier” refers to any person or entityauthorized by the ERC to sell, broker, market oraggregate electricity to the end-users;(zz) “Supplier’s Charge” refers to the charge imposedby electricity suppliers for the sale of electricityto end-users, excluding the charges forgeneration, transmission and distributionwheeling;(aaa) “Supply of Electricity” means the sale ofelectricity by a party other than a generator or adistributor in the franchise area of a distributionutility using the wires of the distribution utilityconcerned;(bbb) “Transmission Charge” refers to the regulatedcost or charges for the use of a transmissionsystem which may include the availment ofancillary services;(ccc) “Transmission Development Plan” or “TDP”refers to the program for managing thetransmission system through efficient planningfor the expansion, upgrading, rehabilitation,repair and maintenance, to be formulated byDOE and implemented by the TRANSCOpursuant to this Act;
  12. 12. (ddd) “Transmission of Electricity” refers to theconveyance of electricity through the highvoltage backbone system; and(eee) “Universal Charge” refers to the charge, if any,imposed for the recovery of the stranded cost andother purposed pursuant to Section 34 hereof.CHAPTER IIORGANIZATION AND OPERATION OF THEELECTRIC POWER INDUSTRYSEC. 5. Organization. – The electric power industryshall be divided into four (4) sectors, namely:generation, transmission, distribution and supply.SEC. 6. Generation Sector. – Generation of electricpower, a business affected with public interest, shall becompetitive and open.Upon the effectivity of this Act, any new generationcompany shall, before it operates, secure from theEnergy Regulatory Commission (ERC) a certificate ofcompliance pursuant to the standards set forth in thisAct, as well as health, safety and environmentalclearances from the appropriate government agenciesunder existing laws.Any law to the contrary notwithstanding, powergeneration shall not be considered a public utilityoperation. For this purpose, any person or entityengaged or which shall engage in power generation andsupply of electricity shall not be required to secure anational franchise.
  13. 13. Upon implementation of retail competition and openaccess, the prices charged by a generation company forthe supply of electricity shall not be subject toregulation by the ERC except as otherwise provided inthis Act.Pursuant to the objective of lowering electricity rates toend-users, sales of generated power by generationcompanies shall be value added tax zero-rated.The ERC shall, in determining the existence of marketpower abuse or anti-competitive behavior, require fromgeneration companies the submission of their financialstatements.SEC. 7. Transmission Sector. – The transmission ofelectric power shall be regulated common electricitycarries business, subject to the ratemaking powers ofthe ERC.The ERC shall set the standards of the voltagetransmission that shall distinguish the transmissionfrom the subtransmission assets. Pending the issuanceof such new standards, the distinction between thetransmission and subtransmission assets shall be asfollows: 230 kilovolts and above in the Luzon grid, 69kilovolts and above in the Visayas and in the isolateddistribution systems, and 138 kilovolts and above in theMindanao Grid: Provided, That for the Visayas and theisolated distribution system, should the 69 kilovolt linenot form part of the main transmission grid and bedirectly connected to the substation of the distributionutility, it shall form part of the subtransmissionsystem.
  14. 14. SEC. 8. Creation of the National TransmissionCompany. – There is hereby created a NationalTransmission Corporation, hereinafter referred to asTRANSCO, which shall assume the electricaltransmission function of the National PowerCorporation (NPC), and have the powers and functionshereinafter granted. The TRANSCO shall assume theauthority and responsibility of NPC for the planning,construction and centralized operation andmaintenance of its high voltage transmission facilities,including grid interconnections and ancillary services.Within six (6) months from the effectivity of this Act,the transmission and subtransmission facilities of NPCand all other assets related to transmission operations,including the nationwide franchise of NPC for theoperation of the transmission system and the grid, shallbe transferred to the TRANSCO.The TRANSCO shall be wholly owned by the PowerSector Assets and Liabilities Management Corporation(PSALM Corp.).The subtransmission functions and assets shall besegregated from the transmission functions, assets andliabilities for transparency and disposal: Provided,That the subtransmission assets shall be operated andmaintained by TRANSCO until their disposal toqualified distribution utilities which are in a position totake over the responsibility for operating, maintaining,upgrading, and expanding said assets.All transmission and subtransmission related liabilitiesof NPC shall be transferred to and assumed by thePSALM Corp.
  15. 15. TRANSCO shall negotiate with and thereafter transfersuch functions, assets, and associated liabilities to thequalified distribution utility or utilities connected tosuch subtransmission facilities not later than two (2)years from the effectivity of this Act or the start of openaccess, whichever comes earlier: Provided, That in thecase of electric cooperatives, the TRANSCO shall grantconcessional financing over a period of twenty (20)years: Provided, however, That the installmentpayments to TRANSCO for the acquisition ofsubtransmission facilities shall be given first priority bythe electric cooperatives out of the net income derivedfrom such facilities. The TRANSCO shall determinethe disposal value of the subtransmission assets basedon the revenue potential of such assets.In case of disagreement in valuation, procedures,ownership participation and other issues, the ERC shallresolve such issues.The take over by a distribution utility of anysubtransmission asset shall not cause a diminution ofservice and quality to the end-users. Where there aretwo or more connected distribution utilities, theconsortium or juridical entity shall be formed by andcomposed of all of them and thereafter shall be granteda franchise to operate the subtransmission asset by theERC.The subscription rights of each distribution utilityinvolved shall be proportionate to their loadrequirements unless otherwise agreed by the parties.Aside from the PSALM Corp., TRANSCO andconnected distribution utilities, no third party shall beallowed ownership or management participation, in
  16. 16. whole or in part, in such subtransmission entity.The TRANSCO may exercise the power of eminentdomain subject to the requirements of the Constitutionand existing laws. Except as provided herein, noperson, company or entity other than the TRANSCOshall own any transmission facilities.Prior to the transfer of the transmission functions byNPC to TRANSCO, and before the promulgation of theGrid Code, ERC shall ensure that NPC shall provide toall electric power industry participants open and non-discriminatory access to its transmission system. Anyviolation thereof shall be subject to the fines andpenalties imposed herein.SEC. 9. Functions and Responsibilities. – Upon theeffectivity of this Act, the TRANSCO shall have thefollowing functions and responsibilities:(a) Act as the system operator of the nationwideelectrical transmission and subtransmissionsystem, to be transferred to it by NPC;(b) Provide open and non-discriminatory access to itstransmission system to all electricity users;(c) Ensure and maintain the reliability, adequacy,security, stability and integrity of the nationwideelectrical grid in accordance with theperformance standards for the operations andmaintenance of the grid, as set forth in a GridCode to be adopted and promulgated by the ERCwithin six (6) months from the effectivity of thisAct;
  17. 17. (d) Improve and expand its transmission facilities,consistent with the Grid Code and theTransmission Development Plan (TDP) to bepromulgated pursuant to this Act, to adequatelyserve generation companies, distribution utilitiesand suppliers requiring transmission serviceand/or ancillary services through thetransmission system: Provided, That TRANSCOshall submit any plan for expansion orimprovement of its facilities for approval by theERC;(e) Subject to technical constraints, the grid operatorof the TRANSCO shall provide central dispatchof all generation facilities connected, directly orindirectly, to the transmission system inaccordance with the dispatch schedule submittedby the market operator, taking into accountoutstanding bilateral contracts; and(f) TRANSCO shall undertake the preparation ofthe TDP.In the preparation of the TDP, TRANSCO shall consultthe other participants of the electric power industrysuch as the generation companies, distribution utilities,and the electricity end-users. The TDP shall besubmitted to the DOE for integration with the PowerDevelopment Program and the Philippine Energy Plan,provided for in Republic Act No. 7638, otherwise knownas the “Department of Energy Act of 1992”.A generation company may develop and own or operatededicated point-to-point limited transmission facilitiesthat are consistent with the TDP: Provided, That suchfacilities are required only for the purpose of connecting
  18. 18. to the transmission system, and are used solely by thegenerating facility, subject to prior authorization by theERC: Provided, further, That in the event that suchassets are required for competitive purposes, ownershipof the same shall be transferred to the TRANSCO at afair market price: Provided, finally, That in the case ofdisagreement on the fair market price, the ERC shalldetermine the fair market value of the asset.SEC. 10. Corporate Powers of the TRANSCO. – As acorporate entity, TRANSCO shall have the followingcorporate powers:(a) To have continuous succession under itscorporate name until otherwise provided by law;(b) To adopt and use a corporate seal and to change,alter or modify the same, if necessary;(c) To sue and be sued;(d) To enter into a contract and execute anyinstrument necessary or convenient for thepurpose for which it is created;(e) To borrow funds from any source, whetherprivate or public, foreign or domestic, and issuebonds and other evidence of indebtedness:Provided, That in the case of the bond issues, itshall be subject to the approval of the Presidentof the Philippines upon recommendation of theSecretary of Finance: Provided, further, Thatforeign loans shall be obtained in accordancewith existing laws, rules and regulations of theBangko Sentral ng Pilipinas;
  19. 19. (f) To maintain a provident fund which consists ofcontributions made by both the TRANSCO andits officials and employees and their earnings forthe payment of benefits to such officials andemployees or their heirs under such terms andconditions as it may prescribe;(g) To do any act necessary or proper to carry out thepurpose for which it is created, or which, fromtime to time, may be declared by the TRANSCOBoard as necessary, useful, incidental orauxiliary to accomplish its purposes andobjectives; and(h) Generally, to exercise all the powers of acorporation under the corporation law insofar asthey are not inconsistent with this Act.SEC. 11. TRANSCO Board of Directors. – All thepowers of the TRANSCO shall be vested in andexercised by a Board of Directors. The Board shall becomposed of a Chairman and six (6) members. TheSecretary of the Department of Finance (DOF) shall bethe ex officio Chairman of the Board. The othermembers of the TRANSCO Board shall include theSecretary of the Department of Energy (DOE), theSecretary of the Department of Environment andNatural Resources (DENR), the President ofTRANSCO, and three (3) members to be appointed bythe President, each representing Luzon, Visayas andMindanao.The members of the Board so appointed by thePresident of the Philippines shall serve for a term of six(6) years, except that any person appointed to fill-in avacancy shall serve only the unexpired term of his/her
  20. 20. predecessor in office. All members of the Board shall beprofessionals of recognized competence and expertise inthe fields of engineering, finance, economics, law orbusiness management. No member of the Board or anyof his relatives within the fourth civil degree ofconsanguinity or affinity shall have any interest, eitheras investor, officer or director, in any generationcompany or distribution utility or other entity engagedin transmitting, generating and supplying electricityspecified by ERC.SEC. 12. Powers and Duties of the Board. – Thefollowing are the powers of the Board:(a) To provide strategic direction for TRANSCO, andformulate medium and long-term strategiespursuant to the vision, mission, and objectives ofTRANSCO;(b) To develop and adopt policies and measures forthe efficient and effective management andoperation of TRANSCO;(c) To organize, re-organize, and determine theorganizational structure and staffing patterns ofTRANSCO; abolish and create offices andpositions; fix the number of its officers andemployees; transfer and re-align such officersand personnel; fix their compensation, allowance,and benefits;(d) To fix the compensation of the President ofTRANSCO and to appoint and fix thecompensation of other corporate officers;(e) For cause, to suspend or remove any corporate
  21. 21. officer appointed by the Board;(f) To adopt and set guidelines for the employmentof personnel on the basis of merit, technicalcompetence, and moral character; and(g) Any provisions of the law to the contrarynotwithstanding, to write-off bad debts.SEC. 13. Board Meetings. – The Board shall meet asoften as may be necessary upon the call of theChairman of the Board or by a majority of the Boardmembers.SEC. 14. Board Per Diems and Allowances. – Themembers of the Board shall receive per diem for eachregular or special meeting of the board actuallyattended by them, and, upon approval of the Secretaryof the Department of Finance, such other allowances asthe Board may prescribe.SEC. 15. Quorum. – The presence of at least four (4)members of the Board shall constitute a quorum, whichshall be necessary for the transaction of any business.The affirmative vote of a majority of the memberspresent in a quorum shall be adequate for the approvalof any resolution, decision or order, except when theBoard shall otherwise agree that a greater vote isrequired.SEC. 16. Powers of the President of TRANSCO. – ThePresident of TRANSCO shall be appointed by thePresident of the Philippines. In the absence of theChairman, the President shall preside over boardmeetings.
  22. 22. The President of TRANSCO shall be the ChiefExecutive Officer of TRANSCO and shall have thefollowing powers and duties:(a) To execute and administer the policies andmeasures approved by the Board, and takeresponsibility for the efficient discharge ofmanagement functions;(b) To oversee the preparation of the budget ofTRANSCO;(c) To direct and supervise the operation andinternal administration of TRANSCO and, forthis purpose, may delegate some or any of hisadministrative responsibilities and duties toother officers of TRANSCO;(d) Subject to the guidelines and policies set up bythe Board, to appoint and fix the number andcompensation of subordinate officials andemployees of TRANSCO; and for cause, toremove, suspend, or otherwise discipline anysubordinate employee of TRANSCO;(e) To submit an annual report to the Board on theactivities and achievements of TRANSCO at theclose of each fiscal year and upon approvalthereof, submit a copy to the President of thePhilippines and to such other agencies as may berequired by law;(f) To represent TRANSCO in all dealings andtransactions with other offices, agencies, andinstrumentalities of the Government and with allpersons and other entities, private or public,
  23. 23. domestic or foreign; and(g) To exercise such other powers and duties as maybe vested in him by the Board from time to time.SEC. 17. Exemption from the Salary StandardizationLaw. – The salaries and benefits of employees in theTRANSCO shall be exempt from Republic Act No. 6758and shall be fixed by the TRANSCO Board.SEC. 18. Profits. – The net profit, if any, of TRANSCOshall be remitted to the PSALM Corp. not later thanninety (90) days after the immediately precedingquarter.SEC. 19. Transmission Charges. – The transmissioncharges of the TRANSCO shall be filed with andapproved by the ERC pursuant to Paragraph (f) ofSection 43 hereof.SEC. 20. TRANSCO Related Businesses. – TRANSCOmay engage in any related business which maximizesutilization of its assets: Provided, That a portion of thenet income derived from such undertaking utilizingassets which form part of the rate base shall be used toreduce transmission wheeling rates as determined bythe ERC. Such portion of net income used to reduce thetransmission wheeling rates shall not exceed fiftypercent (50%) of the net income derived from suchundertaking.Separate accounts shall be maintained for eachbusiness undertaking to ensure that the transmissionbusiness shall neither subsidize in any way suchbusiness undertaking nor encumber its transmissionassets in any way to support such business.
  24. 24. SEC. 21. TRANSCO Privatization. – Within six (6)months from the effectivity of this Act, the PSALMCorp. shall submit a plan for the endorsement by theJoint Power Commission and the approval of thePresident of the Philippines. The President of thePhilippines thereafter shall direct PSALM Corp. toaward in open competitive bidding, the transmissionfacilities, including grid interconnections and ancillaryservices to a qualified party either through an outrightsale or a concession contract. The buyer/concessionaireshall be responsible for the improvement, expansion,operation, and/or maintenance of its transmissionassets and the operation of any related business. Theaward shall result in maximum present value ofproceeds to the national government. In case aconcession contract is awarded, the concessionaire shallhave a contract period of twenty-five (25) years, subjectto review and renewal for a maximum period of anothertwenty-five (25) years.In any case, the awardee shall comply with the GridCode and the TDP as approved. The saleagreement/concession contract shall include, but notlimited to, the provision for performance and financialguarantees or any other covenants which the nationalgovernment may require. Failure to comply with suchobligations shall result in the imposition of appropriatesanctions or penalties by the ERC.The awardee shall be financially and technicallycapable, with proven domestic and/or internationalexperience and expertise as a leading transmissionsystem operator. Such experience must be with atransmission system of comparable capacity andcoverage as the Philippines.
  25. 25. SEC. 22. Distribution Sector. – The distribution ofelectricity to end-users shall be a regulated commoncarrier business requiring a national franchise.Distribution of electric power to all end-users may beundertaken by private distribution utilities,cooperatives, local government units presentlyundertaking this function and other duly authorizedentities, subject to regulation by the ERC.SEC. 23. Functions of Distribution Utilities. – Adistribution utility shall have the obligation to providedistribution services and connections to its system forany end-user within its franchise area consistent withthe Distribution Code. Any entity engaged thereinshall provide open and non-discriminatory access to itsdistribution system to all users.Any distribution utility shall be entitled to impose andcollect distribution wheeling charges and connectionfees from such end-users as approved by the ERC.A distribution utility shall have the obligation to supplyelectricity in the least cost manner to its captivemarket, subject to the collection of retail rate dulyapproved by the ERC.To achieve economies of scale in utility operations,distribution utilities may, after due notice and publichearing, pursue structural and operational reformssuch as but not limited to, joint actions between oramong the distribution utilities, subject to theguidelines issued by the ERC. Such joint actions shallresult in improved efficiencies, reliability of service,reduction of costs and compliance to the performancestandards prescribed in the IRR of this Act.
  26. 26. Distribution utilities shall submit to the ERC astatement of their compliance with the technicalspecifications prescribed in the Distribution Code andthe performance standards prescribed in the IRR of thisAct. Distribution utilities which do not comply withany of the prescribed technical specifications andperformance standards shall submit to the ERC a planto comply, within three (3) years, with said prescribedtechnical specifications and performance standards.The ERC shall, within sixty (60) days upon receipt ofsuch plan, evaluate the same and notify thedistribution utility concerned of its action. Failure tosubmit a feasible and credible plan and/or failure toimplement the same shall serve as grounds for theimposition of appropriate sanctions, fines or penalties.Distribution utilities shall prepare and submit to theDOE their annual distributions developments plans. Inthe case of electric cooperatives, such plans shall besubmitted through the National ElectrificationAdministration.Distribution utilities shall provide universal servicewithin their franchise, over a reasonable time from therequirement thereof, including unviable areas, as partof their social obligations, in a manner that shallsustain the economic viability of the utility, subject tothe approval by the ERC in the case of private orgovernment-owned utilities. To this end, distributionutilities shall submit to the DOE their plans for servingsuch areas as part of their distribution developmentplans. Areas which a franchised distribution utilitycannot or does not find viable may be transferred toanother distribution utility, if any is available, who willprovide the service, subject approval by ERC. In cases
  27. 27. where franchise holders fail and/or refuse to service anyarea within their franchise territory and allowedanother utility to service the same, then the status quoshall be respected.Distribution utilities may exercise the power of eminentdomain subject to the requirements of the Constitutionand existing laws.SEC. 24. Distribution Wheeling Charge. – Thedistribution wheeling charges of distribution utilitiesshall be filed with and approved by the ERC pursuantto Paragraph (f) of Section 43 hereof.SEC. 25. Retail Rate. – The retail rates charged bydistribution utilities for the supply of electricity in theircaptive market shall be subject to regulation by theERC based on the principle of full recovery of prudentand reasonable economic costs incurred, or such otherprinciples that will promote efficiency as may bedetermined by the ERC.Every distribution utility shall identify and segregatein its bills to end-users the components of the retailrate, as defined in this Act.SEC. 26. Distribution Related Businesses. –Distribution utilities may, directly or indirectly, engagein any related business undertaking which maximizesthe utilization of their assets: Provided, That a portionof the net income derived from such undertakingutilizing assets which form part of the rate base shallbe used to reduce its distribution wheeling charges asdetermined by the ERC. Provided, further, That suchportion of net income used to reduce their distributionwheeling charges shall not exceed fifty percent (50%) of
  28. 28. the net income derived from such undertaking:Provided, finally, That separate accounts aremaintained for each business undertaking to ensurethat the distribution business shall neither subsidize inany way such business undertaking nor encumber itsdistribution assets in any way to support suchbusiness.SEC. 27. Franchising Power in the Electric PowerSector. – The power to grant franchises to personsengaged in the transmission and distribution ofelectricity shall be vested exclusively in the Congress ofthe Philippines and all laws inconsistent with this Actparticularly, but not limited to, Section 43 of PD 269,otherwise known as the “National ElectrificationDecree”, are hereby deemed repealed or modifiedaccordingly: Provided, That all existing franchisesshall be allowed to their full term: Provided, further,That in the case of electric cooperatives, renewals andcancellations shall remain with the NationalElectrification Commission under the NationalElectrification Administration for five (5) more yearsafter the enactment of this Act.SEC. 28. De-Monopolization and ShareholdingDispersal. – In compliance with the constitutionalmandate for dispersal of ownership and de-monopolization of public utilities, the holdings ofpersons, natural or juridical, including directors,officers, stockholders and related interests, in adistribution utility and their respective holdingcompanies shall not exceed twenty-five (25%) percent ofthe voting shares of stock unless the utility or thecompany holding the shares or its controllingstockholders are already listed in the Philippine StockExchange (PSE): Provided, That controlling
  29. 29. stockholders of small distribution utilities are herebyrequired to list in the PSE within five (5) years from theenactment of this Act if they already own the stocks.New controlling stockholders shall undertake suchlisting within five (5) years from the time they acquireownership and control. A small distribution company isone whose peak demand is equal to or less than Tenmegawatts (10 MW).The ERC shall, within sixty (60) days from theeffectivity of this Act, promulgate the rules andregulations to implement and effect this provision.This Section shall not apply to electric cooperatives.SEC. 29. Supply Sector. – The supply sector is abusiness affected with public interest. Except fordistribution utilities and electric cooperatives withrespect to their existing franchise areas, all suppliers ofelectricity to the contestable market shall require alicense from the ERC.For this purpose, the ERC shall promulgate rules andregulations prescribing the qualifications of electricitysuppliers which shall include, among otherrequirements, a demonstration of their technicalcapability, financial capability, and creditworthiness:Provided, That the ERC shall have authority to requireelectricity suppliers to furnish a bond or other evidenceof the ability of a supplier to withstand marketdisturbances or other events that may increase the costof providing service.Any law to the contrary notwithstanding, supply ofelectricity to the contestable market shall not beconsidered a public utility operation. For this purpose,
  30. 30. any person or entity which shall engage in the supply ofelectricity to the contestable market shall not berequired to secure a national franchise.The prices to be charged by suppliers for the supply ofelectricity to the contestable market shall not be subjectto regulation by the ERC.Electricity suppliers shall be subject to the rules andregulations concerning abuse of market power,cartelization, and other anti-competitive ordiscriminatory behavior to be promulgated by the ERC.In its billings to end-users, every supplier shall identifyand segregate the components of its supplier’s charge,as defined herein.SEC. 30. Wholesale Electricity Spot Market. – Withinone (1) year from the effectivity of this Act, the DOEshall establish a wholesale electricity spot marketcomposed of the wholesale electricity spot marketparticipants. The market shall provide the mechanismfor identifying and setting the price of actual variationsfrom the quantities transacted under contracts betweensellers and purchasers of electricity.Jointly with the electric power industry participants,the DOE shall formulate the detailed rules for thewholesale electricity spot market. Said rules shallprovide the mechanism for determining the price ofelectricity not covered by bilateral contracts betweensellers and purchasers of electricity users. The pricedetermination methodology contained in said rulesshall be subject to the approval of ERC. Said rulesshall also reflect accepted economic principles andprovide a level playing field to all electric power
  31. 31. industry participants. The rules shall provide, amongothers, procedures for:(a) Establishing the merit order dispatchinstructions for each time period;(b) Determining the market-clearing price for eachtime period;(c) Administering the market, including criteria foradmission to and termination from the marketwhich includes security or performance bondrequirements, voting rights of the participants,surveillance and assurance of compliance of theparticipants with the rules and the formation ofthe wholesale electricity spot market governingbody;(d) Prescribing guidelines for the market operationin system emergencies; and(e) Amending the rules.The wholesale electricity spot market shall beimplemented by a market operator in accordance withthe wholesale electricity spot market rules. The marketoperator shall be an autonomous group, to beconstituted by DOE, with equitable representation fromelectric power industry participants, initially under theadministrative supervision of the TRANSCO. Themarket operator shall undertake the preparatory workand initial operation of the wholesale electricity spotmarket. Not later than one (1) year after theimplementation of the wholesale electricity spotmarket, an independent entity shall be formed and thefunctions, assets and liabilities of the market operator
  32. 32. shall be transferred to such entity with the jointendorsement of the DOE and the electric powerindustry participants. Thereafter, the administrativesupervision of the TRANSCO over such entity shallcease.Subject to the compliance with the membership criteria,all generating companies, distribution utilities,suppliers, bulk consumers/end-users and other similarentities authorized by the ERC shall be eligible tobecome members of the wholesale electricity spotmarket.The ERC may authorize other similar entities tobecome eligible as members, either directly orindirectly, of the wholesale electricity spot market. Allgenerating companies, distribution utilities, suppliers,bulk consumers/end-users and other similar entitiesauthorized by the ERC, whether direct or indirectmembers of the wholesale electricity spot market, shallbe bound by the wholesale electricity spot market, shallbe bound by the wholesale electricity spot market ruleswith respect to transactions in that market.NEA may, in exchange for adequate security and aguarantee fee, act as a guarantor for purchases ofelectricity in the wholesale electricity spot market byany electric cooperative or small distribution utility tosupport their credit standing consistent with theprovisions hereof. For this purpose, the authorizedcapital stock of NEA is hereby increased to Fifteenbillion pesos (P 15,000,000,000.00).All electric cooperatives which have outstandinguncollected billings to any local government unit shallreport such billings to NEA which shall, in turn, report
  33. 33. the same to the Department of Budget andManagement (DBM) for collection pursuant toExecutive Order 190 issued on December 21, 1999.The cost of administering and operating the wholesaleelectricity spot market shall be recovered by the marketoperator through a charge imposed to all marketmembers: Provided, That such charge shall be filedwith and approved by the ERC.In cases of national and international securityemergencies or natural calamities, the ERC is herebyempowered to suspend the operation of the wholesaleelectricity spot market or declare a temporarywholesale electricity spot market failure.SEC. 31. Retail Competition and Open Access. – Anylaw to the contrary notwithstanding, retail competitionand open access on distribution wires shall beimplemented not later than three (3) years upon theeffectivity of this Act, subject to the followingconditions:(a) Establishment of the wholesale electricity spotmarket;(b) Approval of unbundled transmission anddistribution wheeling charges;(c) Initial implementation of the cross subsidyremoval scheme;(d) Privatization of at least seventy (70%) percent ofthe total capacity of generating assets of NPC inLuzon and Visayas; and
  34. 34. (e) Transfer of the management and control of atleast seventy percent (70%) of the total energyoutput of power plants under contract with NPCto the IPP Administrators.Upon the initial implementation of open access, theERC shall allow all electricity end-users with a monthlyaverage peak demand of at least one megawatt (1 MW)for the preceding twelve (12) months to be thecontestable market. Two (2) years thereafter, thethreshold level for the contestable market shall bereduced to seven hundred fifty kilowatts (750 kW). Atthis level, aggregators shall be allowed to supplyelectricity to end-users whose aggregate demand withina contiguous area is at least seven hundred fiftykilowatts (750 kW). Subsequently and every yearthereafter, the ERC shall evaluate the performance ofthe market. On the basis of such evaluation, it shallgradually reduce threshold level until it reaches thehousehold demand level. In the case of electriccooperatives, retail competition and open access shallbe implemented not earlier than five (5) years upon theeffectivity of this Act.SEC. 32. NPC Stranded Debt and Contract CostRecovery. – Stranded debt of NPC shall refer to anyunpaid financial obligations of NPC.Stranded contract costs of NPC shall refer to the excessof the contracted cost of electricity under eligible IPPcontracts of NPC over the actual selling price of thecontracted energy output of such contracts in themarket. Such contracts shall have been approved bythe ERB as of December 31, 2000.The national government shall directly assume a
  35. 35. portion of the financial obligations of NPC in anamount not to exceed Two hundred billion pesos (P200,000,000,000,00)The ERC shall verify the reasonable amounts anddetermine the manner and duration for the fullrecovery of stranded debt and stranded contract costsas defined herein: Provided, That the duration for suchrecovery shall not be shorter than fifteen (15) years norlonger than twenty-five (25) years. The ERC shall, atthe end of the first year of the implementation ofstranded cost recovery and every year thereafter,conducts a review to determine whether there is under-recovery or over-recovery and adjust (tune-up) the levelof stranded cost recovery charge accordingly. Anyamount to be included for stranded cost recovery shallbe reflected as a separate item in the consumer billingstatement.SEC. 33. Distribution Utilities Stranded Contract CostsRecovery. – Stranded contract costs of distributionutilities shall refer to the excess of the contracted costof electricity under eligible contracts of such utilitiesover the actual selling price of such contracts in themarket. Such contracts shall have been approved bythe ERB as of December 31, 2000.A distribution utility shall recover stranded contractcosts: Provided, however, That such costs of the IPPs ofdistribution utilities are subject to review by ERC inorder to determine fairness and reasonableness inrelation to the average price of land-based IPP projectsentered into by NPC at the time they were contracted.The ERC shall take into consideration all factors thataffect the total cost of NPC IPP generation projects,including direct or indirect subsidies or incentives
  36. 36. provided by the Government.Within one (1) year from the start of open access, anydistribution utility that seeks recovery of strandedcontract costs shall file with the ERC notice of suchintent together with an estimate of such obligations,including the present value thereof and such othersupporting data as may be required by the ERC. Anydistribution utility that does not file within the datespecified shall not be eligible for such recovery.Any distribution utility which seeks to recover strandedcost shall have a duty to mitigate its potential strandedcontract costs by making reasonable best efforts to:(a) reduce the costs of its existing contracts withIPPs to a level not exceeding the average buyingprice of other land-based electric powergenerators; and(b) submit to an annual earnings review by the ERCand use its earnings above its authorized rate ofreturn to reduce the book value of contracts untilthe end of the stranded cost recovery period.Other mitigating measures which are reasonablyknown and generally accepted within the electric powerindustry shall be utilized. The ERC shall not requirethe distribution utility to take a loss to reduce strandedcontract costs or divest assets, unless the divestiture isimposed as a penalty as provided herein.The relevant distribution utility shall submit to theERC quarterly reports showing the amount of strandedcosts recovered and the balance remaining to berecovered.
  37. 37. Within three (3) months from the submission of theapplication for stranded cost recovery by the relevantdistribution utilities, the ERC shall verify thereasonable amounts and determine the manner andduration for the full recovery of stranded contract costsas defined herein: Provided, That the duration for suchrecovery shall not be shorter than fifteen (15) years norlonger than twenty-five (25) years. Any amount to beincluded for stranded cost recovery shall be reflected asa separate item in the consumer billing statement.The ERC shall, at the end of the first year of theimplementation of stranded cost recovery and everyyear thereafter, conduct a review to determine whetherthere is under-recovery or over recovery and adjust(true-up) the level of stranded cost recovery chargeaccordingly. In case of an over-recovery, the ERC shallensure that any excess amount shall be remitted to theSpecial Trust Fund created under Section 34 hereof. Aseparate account shall be created for these amountswhich shall be held in trust for any future claims ofdistribution utilities for stranded cost recovery. At theend of the stranded cost recovery period, any remainingamount in this account shall be used to reduce theelectricity rates to the end-users.SEC. 34. Universal Charge. – Within one (1) year fromthe effectivity of this Act, a universal charge to bedetermined, fixed and approved by the ERC, shall beimposed on all electricity end-users for the followingpurposes:(a) Payment for the stranded debts in excess of theamount assumed by the National Governmentand stranded contract costs of NPC and as well
  38. 38. as qualified stranded contract costs ofdistribution utilities resulting from therestructuring of the industry;(b) Missionary electrification;(c) The equalization of the taxes and royaltiesapplied to indigenous or renewable sources ofenergy vis-à-vis imported energy fuels;(d) An environmental charge equivalent to one-fourth of one centavo per kilowatt-hour (P0.0025/kWh), which shall accrue to anenvironmental fund to be used solely forwatershed rehabilitation and management. Saidfund shall be managed by NPC under existingarrangements; and(e) A charge to account for all forms of cross-subsidies for a period not exceeding three (3)years.The universal charge shall be non-bypassable chargewhich shall be passed on and collected from all end-users on a monthly basis by the distribution utilities.Collections by the distribution utilities and theTRANSCO in any given month shall be remitted to thePSALM Corp. on or before the fifteenth (15th) of thesucceeding month, net of any amount due to thedistribution utility. Any end-user or self-generatingentity not connected to a distribution utility shall remitits corresponding universal charge directly to theTRANSCO.The PSALM Corp., as administrator of the fund, shallcreate a Special Trust Fund which shall be disbursed
  39. 39. only for the purposes specified herein in an open andtransparent manner. All amounts collected for theuniversal charge shall be distributed to the respectivebeneficiaries within a reasonable period to be providedby the ERC.SEC. 35. Royalties, Returns and Tax Rates forIndigenous Energy Resources. – The provisions ofSection 79 of Commonwealth Act No. 137 (C.A. No. 137)and any law to the contrary notwithstanding, thePresident of the Philippines shall reduce the royalties,returns and taxes collected for the exploitation of allindigenous sources of energy, including but not limitedto, natural gas and geothermal steam, so as to effectparity of tax treatment with the existing rates forimported coal, crude oil, bunker fuel and other importedfuels.To ensure lower rates for end-users, the ERC shallforthwith reduce the rates of power from all indigenoussources of energy.SEC. 36. Unbundling of Rates and Functions. –Within six (6) months from the effectivity of this Act,NPC shall file with the ERC its revised rates. Therates of NPC shall be unbundled between transmissionand generation rates and the rates shall reflect therespective costs of providing each service.Inter-grid and intra-grid cross subsidies for both thetransmission and the generation rates shall be removedin accordance with this Act.Within six (6) months from the effectivity of this Act,each distribution utility shall file its revised rates forthe approval by the ERC. The distribution wheeling
  40. 40. charge shall be unbundled from the retail rate and therates shall reflect the respective costs of providing eachservice. For both the distribution retail wheeling andsupplier’s charges, inter-class subsidies shall beremoved in accordance with this Act.Within six (6) months from the date of submission ofrevised rates by NPC and each distribution utility, theERC shall notify the entities of their approval.Any electric power industry participant shallfunctionally and structurally unbundle its businessactivities and rates in accordance with the sectors asidentified in Section 5 hereof. The ERC shall ensurefull compliance with this provision.CHAPTER IIIROLE OF THE DEPARTMENT OF ENERGYSEC. 37. Powers and Functions of the DOE. – Inaddition to its existing powers and functions, the DOEis hereby mandated to supervise the restructuring ofthe electricity industry. In pursuance thereof, Section 5of RA 7638 otherwise known as “The Department ofEnergy Act of 1992” is hereby amended to read asfollows:(a) Formulate policies for the planning andimplementation of a comprehensive program forthe efficient supply and economical use of energyconsistent with the approved national economicplan and with the policies on environmentalprotection and conservation and maintenance ofecological balance, and provide a mechanism forthe integration, rationalization, and coordination
  41. 41. of the various energy programs of theGovernment;(b) Develop and update annually the existingPhilippine Energy Plan, hereinafter referred toas “The Plan”, which shall provide for anintegrated and comprehensive exploration,development, utilization, distribution, andconservation of energy resources, withpreferential bias for environment-friendly,indigenous, and low-cost sources of energy. Theplan shall include a policy direction towards theprivatization of government agencies related toenergy, deregulation of the power and energyindustry, and reduction of dependency on oil-fired plants. Said Plan shall be submitted toCongress not later than the fifteenth day ofSeptember and every year thereafter;(c) Prepare and update annually a PowerDevelopment Program (PDP) and integrate thesame into the Philippine Energy Plan. The PDPshall consider and integrate the individual orjoint development plans of the transmission,generation, and distribution sectors of theelectric power industry, which are submitted tothe Department: Provided, however, That theERC shall have exclusive authority covering theGrid Code and the pertinent rules andregulations it may issue;(d) Ensure the reliability, quality and security ofsupply of electric power;(e) Following the restructuring of the electricitysector, the DOE shall, among others:
  42. 42. (i) Encourage private sector investments inthe electricity sector and promotedevelopment of indigenous and renewableenergy sources;(ii) Facilitate and encourage reforms in thestructure and operations of distributionutilities for greater efficiency and lowercosts;(iii) In consultation with other governmentagencies, promote a system of incentives toencourage industry participants, includingnew generating companies and end-usersto provide adequate and reliable electricsupply; and(iv) Undertake in coordination with the ERC,NPC, NEA and the Philippine InformationAgency (PIA), information campaign toeducate the public on the restructuring ofthe electricity sector and privatization ofNPC assets.(f) Jointly with the electric power industryparticipants, establish the wholesale electricityspot market and formulate the detailed rulesgoverning the operations thereof;(g) Establish and administer programs for theexploration, transportation, marketing,distribution, utilization, conservation,stockpiling, and storage of energy resources of allforms, whether conventional or non-conventional;
  43. 43. (h) Exercise supervision and control over allgovernment activities relative to energy projectsin order to attain the goals embodied in Section 2of RA 7638;(i) Develop policies and procedures and, asappropriate, promote a system of energydevelopment incentives to enable and encourageelectric power industry participants to provideadequate capacity to meet demand including,among others, reserve requirements;(j) Monitor private sector activities relative to energyprojects in order to attain the goals of therestructuring, privatization, and modernizationof the electric power sector as provided for underexisting laws: Provided, That the Departmentshall endeavor to provide for an environmentconducive to free and active private sectorparticipation and investment in all energyactivities;(k) Assess the requirements of, determine prioritiesfor, provide direction to, and disseminateinformation resulting from energy research anddevelopment programs for the optimaldevelopment of various forms of energyproduction and utilization technologies;(l) Formulate and implement programs, including asystem of providing incentives and penalties, forthe judicious and efficient use of energy in allenergy-consuming sectors of the economy;(m) Formulate and implement a program for theaccelerated development of non-conventional
  44. 44. energy systems and the promotion andcommercialization of its applications;(n) Devise ways and means of giving direct benefit tothe province, city, or municipality, especially thecommunity and people affected, and equitablepreferential benefit to the region that hosts theenergy resource and/or the energy-generatingfacility: Provided, however, That the otherprovinces, cities, municipalities, or regions shallnot be deprived of their energy requirements;(o) Encourage private enterprises engaged in energyprojects, including corporations, cooperatives,and similar collective organizations, to broadenthe base of their ownership and therebyencourage the widest public ownership of energy-oriented corporations;(p) Formulate such rules and regulations as may benecessary to implement the objectives of this Act;and(q) Exercise such other powers as may be necessaryor incidental to attain the objectives of this Act.CHAPTER IVREGULATION OF THE ELECTRIC POWERINDUSTRYSEC. 38. Creation of the Energy RegulatoryCommission. – There is hereby created anindependent, quasi-judicial regulatory body to benamed the Energy Regulatory Commissions (ERC). Forthis purpose, the existing Energy Regulatory Board
  45. 45. (ERB) created under Executive Order No. 172, asamended, is hereby abolished.The Commission shall be composed of a Chairman andfour (4) members to be appointed by the President ofthe Philippines. The Chairman and the members of theCommission shall be natural-born citizens andresidents of the Philippines, persons of good moralcharacter, at least thirty-five (35) years of age, and ofrecognized competence in any of the following fields:energy, law, economics, finance, commerce, orengineering, with at least three (3) years actual anddistinguished experience in their respective fields ofexpertise: Provided, That out of the four (4) members ofthe Commission, at least one (1) shall be a member ofthe Philippine Bar with at least ten (10) yearsexperience in the active practice of law, and one (1)shall be a certified public accountant with at least ten(10) years experience in active practice.Within three (3) months from the creation of the ERC,the Chairman shall submit for the approval by thePresident of the Philippines the new organizationalstructure and plantilla positions necessary to carry outthe powers and functions of the ERC.The Chairman of the Commission, who shall be amember of the Philippine Bar, shall act as the ChiefExecutive Officer of the Commission.All members of the Commission shall have a term ofseven (7) years: Provided, That for the first appointees,the Chairman shall hold office for seven (7) years, two(2) members shall hold office for five (5) years and theother two (2) members shall hold office for three (3)years; Provided, further, That appointment to any
  46. 46. future vacancy shall only be for the unexpired term ofthe predecessor: Provided, finally, That there shall beno reappointment and in no case shall any memberserve for more than seven (7) years in the Commission.The Chairman and members of the Commission shallassume office of the beginning of their terms: Provided,That, if upon the effectivity of this Act, the Commissionhas not been constituted and the new staffing patternand plantilla positions have not been approved andfilled-up, the current Board and existing personnel ofERB shall continue to hold office.The existing personnel of the ERB, if qualified, shall begiven preference in the filling up of plantilla positionscreated in the ERC, subject to existing civil servicerules and regulations.Members of the Commission shall enjoy security oftenure and shall not be suspended or removed fromoffice except for just cause as specified by law.The Chairman and members of the Commission or anyof their relatives within the fourth civil degree ofconsanguinity or affinity, legitimate or common law,shall be prohibited from holding any interestwhatsoever, either as investor, stockholder, officer ordirector, in any company or entity engaged in thebusiness of transmitting, generating, supplying ordistributing any form of energy and must, therefore,divest through sale or legal disposition of any and allinterests in the energy sector upon assumption ofoffice.The presence of at least three (3) members of theCommission shall constitute a quorum and the majority
  47. 47. vote of two (2) members in a meeting where a quorumis present shall be necessary for the adoption of anyrule, ruling, order, resolution, decision, or other act ofthe Commission in the exercise of its quasi-judicialfunctions: Provided, That in fixing rates and tariffs, anaffirmative vote of three (3) members shall be required.SEC. 39. Compensation and Other Emoluments forERC Personnel. – The compensation and otheremoluments for the Chairman and members of theCommission and the ERC personnel shall be exemptedfrom the coverage of Republic Act No. 6758, otherwiseknown as the “Salary Standardization Act”. For thispurpose, the schedule of compensation of the ERCpersonnel, except for the initial salaries andcompensation of the Chairman and members of theCommission, shall be submitted for approval by thePresident of the Philippines. The new schedule ofcompensation shall be implemented within six (6)months from the effectivity of this Act and may beupgraded by the President of the Philippines as theneed arises: Provided, That in no case shall the rate beupgraded more than once a year.The Chairman and members of the Commission shallinitially be entitled to the same salaries, allowancesand benefits as those of the Presiding Justice andAssociate Justices of the Supreme Court, respectively.The Chairman and the members of the Commissionshall, upon completion of their term or upon becomingeligible for retirement under existing laws, be entitledto the same retirement benefits and the privilegesprovided for the Presiding Justice and AssociateJustices of the Supreme Court, respectively.SEC. 40. Enhancement of Technical Competence. –
  48. 48. The ERC shall establish rigorous training programs forits staff for the purpose of enhancing the technicalcompetence of the ERC in the following areas:evaluation of technical performance and monitoring ofcompliance with service and performance standards,performance-based rate-setting reform, environmentalstandards and such other areas as will enable the ERCto adequately perform its duties and functions.SEC. 41. Promotion of Consumer Interests. – The ERCshall handle consumer complaints and ensure theadequate promotion of consumer interests.SEC. 42. Budget of the ERC. – The amount of Onehundred fifty million pesos (P 150,000,000.00) is herebyallocated from the existing budget of the ERB for theinitial operation of the ERC. Any balance shall initiallybe sourced from the Office of the President of thePhilippines. Thereafter, the annual budget of the ERCshall be included in the regular or specialappropriations.SEC. 43. Functions of the ERC. –The ERC shallpromote competition, encourage market development,ensure customer choice and penalize abuse of marketpower in the restructured electricity industry. Inappropriate cases, the ERC is authorized to issue ceaseand desist order after due notice and hearing. Towardsthis end, it shall be responsible for the following keyfunctions in the restructured industry:(a) Enforce the implementing rules and regulations ofthis Act;(b) Within six (6) months from the effectivity of thisAct, promulgate and enforce, in accordance with
  49. 49. law, a National Grid Code and a DistributionCode which shall include, but not limited to, thefollowing:(i) Performance standards for TRANSCO O &M Concessionaire, distribution utilitiesand suppliers: Provided, That in theestablishment of the performancestandards, the nature and function of theentities shall be considered; and(ii) Financial capability standards for thegenerating companies, the TRANSCO,distribution utilities and suppliers:Provided, further, That such standards areset to ensure that the electric powerindustry participants meet the minimumfinancial standards to protect the publicinterest. Determine, fix, and approve,after due notice and public hearings theuniversal charge, to be imposed on allelectricity end-users pursuant to Section34 hereof.(c) Enforce the rules and regulations governing theoperations of the electricity spot market and theactivities of the spot market operator and otherparticipants in the spot market, for the purposeof ensuring a greater supply and rational pricingof electricity;(d) Determine the level of cross subsidies in theexisting retail rate until the same is removedpursuant to Section 74 hereof;(e) Amend or revoke, after due notice and hearing,
  50. 50. the authority to operate of any person or entitywhich fails to comply with the provisions hereof,the IRR or any order or resolution of the ERC. Inthe event a divestment is required, the ERC shallallow the affected party sufficient time to remedythe infraction or for an orderly disposal, but in nocase exceed twelve (12) months from the issuanceof the order;(f) In the public interest, establish and enforce amethodology for setting transmission anddistribution wheeling rates and retail rates forthe captive market of a distribution utility,taking intro account all relevant considerations,including the efficiency or inefficiency of theregulated entities. The rates must be such as toallow the recovery of just and reasonable costsand a reasonable return on rate base (RORB) toenable the entity to operate viably. The ERCmay adopt alternative forms of internationally-accepted rate-setting methodology as it maydeem appropriate. The rate-setting methodologyso adopted and applied must ensure a reasonableprice of electricity. The rates prescribed shall benon-discriminatory. To achieve this objectiveand to ensure the complete removal of crosssubsidies, the cap on the recoverable rate ofsystem losses prescribed in Section 10 ofRepublic Act No. 7832, is hereby amended andshall be replaced by caps which shall bedetermined by the ERC based on load density,sales mix, cost of service, delivery voltage andother technical considerations it maypromulgate. The ERC shall determine such formor rate-setting methodology, which shall promoteefficiency. In case the rate setting methodology
  51. 51. used is RORB, it shall be subject to the followingguidelines:(i) For purposes of determining the rate base,the TRANSCO or any distribution utilitymay be allowed to revalue its eligibleassets not more than once every three (3)years by an independent appraisalcompany: Provided, however, That ERCmay give an exemption in case of unusualdevaluation: Provided, further, That theERC shall exert efforts to minimize priceshocks in order to protect the consumers;(ii) Interest expenses are not allowabledeductions from permissible return on ratebase;(iii) In determining eligible cost of servicesthat will be passed on to the end-users, theERC shall establish minimum efficiencyperformance standards for the TRANSCOand distribution utilities includingsystems losses, interruption frequencyrates, and collection efficiency;(iv) Further, in determining rate base, theTRANSCO or any distribution utility shallnot be allowed to include managementinefficiencies like cost of project delays notexcused by force majeure, penalties andrelated interest during constructionapplicable to these unexcused delays; and(v) Any significant operating costs or projectinvestments of the TRANSCO and
  52. 52. distribution utilities which shall becomepart of the rate base shall be subject toverification by the ERC to ensure that thecontracting and procurement of theequipment, assets and services have beensubjected to transparent and acceptedindustry procurement and purchasingpractices to protect the public interest.(g) Three (3) years after the imposition of theuniversal charge, ensure that the charges of theTRANSCO or any distribution utility shall bearno cross subsidies between grids, within grids, orbetween classes of customers, except as providedherein;(h) Review and approve any changes on the termsand conditions of service of the TRANSCO or anydistribution utility;(i) Allow the TRANSCO to charge user fees forancillary services to all electric power industryparticipants or self-generating entities connectedto the grid. Such fees shall be fixed by the ERCafter due notice and public hearing;(j) Set a lifeline rate for the marginalized end-users;(k) Monitor and take measures in accordance withthis Act to penalize abuse of market power,cartelization, and anti-competitive ordiscriminatory behavior by any electric powerindustry participant;(l) Impose fines or penalties for any non-compliancewith or breach of this Act, the IRR of this Act and
  53. 53. the rules and regulations which it promulgatesor administers;(m) Take any other action delegated to it pursuant tothis Act;(n) Before the end of April of each year, submit tothe Office of the President of the Philippines andCongress, copy furnished the DOE, an annualreport containing such matters or cases whichhave been filed before or referred to it during thepreceding year, the actions and proceedingsundertaken and its decision or resolution in eachcase. The ERC shall make copies of such reportsavailable to any interested party upon paymentof a charge which reflects the printing costs. TheERC shall publish all its decisions involvingrates and anti-competitive cases in at least one(1) newspaper of general circulation, and/or postelectronically and circulate to all interestedelectric power industry participants copies of itsresolutions to ensure fair and impartialtreatment;(o) Monitor the activities in the generation andsupply of the electric power industry with theend in view of promoting free market competitionand ensuring that the allocation or pass throughof bulk purchase cost by distributors istransparent, non-discriminatory and that anyexisting subsidies shall be divided pro-rataamong all retail suppliers;(p) Act on applications for or modifications ofcertificates of public convenience and/ornecessity, licenses or permits of franchised
  54. 54. electric utilities in accordance with law andrevoke, review and modify such certificates,licenses or permits in appropriate cases, such asin cases of violations of the Grid Code,Distribution Code and other rules andregulations issued by the ERC in accordancewith law;(q) Act on applications for cost recovery and returnon demand side management projects;(r) In the exercise of its investigative and quasi-judicial powers, act against any participant orplayer in the energy sector for violations of anylaw, rule and regulation governing the same,including the rules on cross-ownership, anti-competitive practices, abuse of market positionsand similar or related acts by any participant inthe energy sector or by any person, as may beprovided by law, and require any person or entityto submit any report or data relative to anyinvestigation or hearing conducted pursuant tothis Act;(s) Inspect, on its own or through duly authorizedrepresentatives, the premises, books of accountsand records of any person or entity at any time,in the exercise of its quasi-judicial power forpurposes of determining the existence of anyanti-competitive behavior and/or market powerabuse and any violation of rules and regulationsissued by the ERC;(t) Perform such other regulatory functions as areappropriate and necessary in order to ensure thesuccessful restructuring and modernization of
  55. 55. the electric power industry, such as, but notlimited to, the rules and guidelines under whichgeneration companies, distribution utilitieswhich are not publicly listed shall offer and sellto the public a portion not less than fifteenpercent (15%) of their common shares of stocks:Provided, however, That generation companies,distribution utilities or their respective holdingcompanies that are already listed in the PSE aredeemed in compliance. For existing companies,such public offering shall be implemented notlater than five (5) years from the effectivity ofthis Act. New companies shall implement theirrespective public offerings not later than five (5)years from the issuance of their certificate ofcompliance; and(u) The ERC shall have the original and exclusivejurisdiction over all cases contesting rates, fees,fines and penalties imposed by the ERC in theexercise of the above mentioned powers,functions and responsibilities and over all casesinvolving disputes between and amongparticipants or players in the energy sector.All notices of hearings to be conducted by the ERC forthe purpose of fixing rates or fees shall be published atleast twice for two successive weeks in two (2)newspapers of nationwide circulation.SEC. 44. Transfer of Powers and Functions. – Thepowers and functions of the Energy Regulatory Boardnot inconsistent with the provisions of this Act arehereby transferred to the ERC. The foregoing transferof powers and functions shall include all applicablefunds and appropriations, records, equipment, property
  56. 56. and personnel as may be necessary.SEC. 45. Cross Ownership, Market Power Abuse andAnti-Competitive Behavior. – No participant in theelectricity industry or any other person may engage inany anti-competitive behavior including, but not limitedto, cross-subsidization, price or market manipulation,or other unfair trade practices detrimental to theencouragement and protection of contestable markets.No generation company, distribution utility, or itsrespective subsidiary or affiliate or stockholder orofficial of a generation company or distribution utility,or other entity engaged in generating and supplyingelectricity specified by ERC within the fourth civildegree of consanguinity or affinity, shall be allowed tohold any interest, directly or indirectly, in TRANSCO orits concessionaire. Likewise, the TRANSCO, or itsconcessionaire or any of its stockholders or officials orany of their relatives within the fourth civil degree ofconsanguinity or affinity, shall not hold any interest,whether directly or indirectly, in any generationcompany or distribution utility. Except for ex officiogovernment-appointed representatives, no person whois an officer or director of the TRANSCO or itsconcessionaire shall be an officer or director of anygeneration company, distribution utility or supplier.An “affiliate” means any person which, alone ortogether with any other person, directly or indirectly,through one or more intermediaries, controls, iscontrolled by, or is under common control with anotherperson. As used herein, “control” shall mean the powerto direct or cause the direction of the managementpolicies of a person by contract, agency or otherwise.
  57. 57. To promote true market competition and preventharmful monopoly and market power abuse, the ERCshall enforce the following safeguards:(a) No company or related group can own, operate orcontrol more than thirty percent (30%) of theinstalled generating capacity of a grid and/ortwenty-five percent (25%) of the nationalinstalled generating capacity. “Related group”includes a person’s business interests, includingits subsidiaries, affiliates, directors or officers orany of their relatives by consanguinity oraffinity, legitimate or common law, within thefourth civil degree;(b) Distribution utilities may enter into bilateralpower supply contracts subject to review by theERC: Provided, That such review shall only berequired for distribution utilities whose marketshave not reached household demand level. Forthe purpose of preventing market power abusebetween associated firms engaged in generationand distribution, no distribution utility shall beallowed to source from bilateral power supplycontracts more than fifty percent (50%) of itstotal demand from an associated firm engaged ingeneration but such limitation, however, shallnot prejudice contracts entered into prior to theeffectivity of this Act. An associated firm withrespect to another entity refers to any personwhich, alone or together with any other person,directly or indirectly, through one or moreintermediaries, controls, is controlled by, or isunder common control with, such entity; and(c) For the first five (5) years from the establishment
  58. 58. of the wholesale electricity spot market, nodistribution utility shall source more than ninetypercent (90%) of its total demand from bilateralpower supply contracts.For purposes of this Section, the grid basis shall consistof three (3) separate grids, namely Luzon, Visayas andMindanao. The ERC shall have the authority to modifyor amend this definition of a grid when two or more ofthe three separate grids become sufficientlyinterconnected to constitute a single grid or asconditions may otherwise permit.Exceptions from these limitations shall be allowed forisolated grids that are not connected to the high voltagetransmission system. Except as otherwise provided forin this Section, any restriction on ownership and/orcontrol between or within sectors of the electricityindustry may be imposed by ERC only insofar as theenforcement of the provisions of this Section isconcerned.The ERC shall, within one (1) year from the effectivityof this Act, promulgate rules and regulations to ensureand promote competition, encourage marketdevelopment and customer choice anddiscourage/penalize abuse of market power,cartelization and any anti-competitive ordiscriminatory behavior, in order to further the intentof this Act and protect the public interest. Such rulesand regulations shall define the following:(a) the relevant markets for purposes of establishingabuse or misuse of monopoly or market position;(b) areas of isolated grids; and
  59. 59. (c) the periodic reportorial requirements of electricpower industry participants as may be necessaryto enforce the provisions of this Section.The ERC shall, motu proprio, monitor and penalize anymarket power abuse or anti-competitive ordiscriminatory act or behavior by any participant in theelectric power industry. Upon finding that a marketparticipant has engaged in such act or behavior, theERC shall stop and redress the same. Such remediesshall, without limitation, include the imposition of pricecontrols, issuance of injunctions, requirement ofdivestment or disgorgement of excess profits andimposition of fines and penalties pursuant to this Act.The ERC shall, within one (1) year from the effectivityof this Act, promulgate rules and regulations providingfor a complaint procedure that, without limitation,provides the accused party with notice and anopportunity to be heard.SEC. 46. Fines and Penalties. – The fines andpenalties that shall be imposed by the ERC for anyviolation of or non-compliance with this Act or the IRRshall range from a minimum of fifty thousand pesos (P50,000.00) to a maximum of Fifty million pesos (P50,000,000.00).Any person who is found guilty of any of the prohibitedacts pursuant to Section 45 hereof shall suffer thepenalty of prision mayor and fine ranging from Tenthousand pesos (P 10,000.00) 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
  60. 60. companies participating in or covered in the generationcompanies, the distribution utilities, the TRANSCO orits concessionaire or supplier who violate the provisionsof this Act may be fined by an amount not exceedingdouble the amount of damages caused by the offenderor by imprisonment of one (1) year or two (2) years orboth at the discretion of the court. This rule shall applyto the members of the Board who knowingly or byneglect allows the commission or omission under thelaw.If the offender is a government official or employee, heshall, in addition, be dismissed from the governmentservice with prejudice to reinstatement and withperpetual or temporary disqualification from holdingany elective or appointive office.If the offender is an alien, he may, in addition to thepenalties prescribed, be deported without furtherproceedings after service of sentence.Any case which involves question of fact shall beappealable to the Court of Appeals and those whichinvolve question of law shall be directly appealable tothe Supreme Court.The administrative sanction that may be imposed bythe ERC shall be without prejudice to the filing of acriminal action, if warranted.To ensure compliance with this Act, the penalty ofprision correccional or a fine ranging from Fivethousand pesos (P 5,000.00) to Five million pesos (P5,000,000.00), or both, at the discretion of the court,shall be imposed on any person, including but notlimited to the president, member of the Board, Chief
  61. 61. Executive Officer or Chief Operating Officer of thecorporation, partnership, or any other entity involved,found guilty of violating or refusing to comply with anyprovision of this Act or its IRR, other than thoseprovided herein.Any party to an administrative proceeding may, at anytime, make an offer to the ERC, conditionally orotherwise, for a consented decree, voluntary complianceor desistance and other settlement of the case. Theoffer and any or all of the ultimate facts upon which theoffer is based shall be considered for settlementpurposes only and shall not be used as evidence againstany party for any other purpose and shall not constitutean admission by the party making the offer of anyviolation of the laws, rules, regulations, orders andresolutions of the ERC, nor as a waiver to file anywarranted criminal actions.In addition, Congress may, upon recommendation of theDOE and/or ERC, revoke such franchise or privilegegranted to the party who violated the provisions of thisAct.CHAPTER VPRIVATIZATION OF THE ASSETS OF THENATIONAL POWER CORPORATIONSEC. 47. NPC Privatization. – Except for the assets ofSPUG, the generation assets, real estate, and otherdisposable assets as well as IPP contracts of NPC shallbe privatized in accordance with this Act.Within six (6) months from the effectivity of this Act,the PSALM Corp. shall submit a plan for the
  62. 62. endorsement by the Joint Congressional PowerCommission and the approval of the President of thePhilippines, on the total privatization of the generationassets, real estate, other disposable assets as well asexisting IPP contracts of NPC and thereafter,implement the same, in accordance with the followingguidelines, except as provided for in Paragraph (f)herein:(a) The privatization value to the NationalGovernment of the NPC generation assets, realestate, other disposable assets as well as IPPcontracts shall be optimized;(b) The participation by Filipino citizens andcorporations in the purchase of NPC assets shallbe encouraged:In the case of foreign investors, at least seventy-five percent (75%) of the funds used to acquireNPC generation assets and IPP contracts shallbe inwardly remitted and registered with theBangko Sentral ng Pilipinas.(c) The NPC plants and/or IPP contracts assigned toIPP Administrators, its related assets andassigned liabilities, if any, shall be grouped in amanner which shall promote the viability of theresulting generation companies (gencos), ensureeconomic efficiency, encourage competition,foster reasonable electricity rates and createmarket appeal to optimize returns to thegovernment from the sale and disposition of suchassets in a manner consistent with the objectivesof this Act. In the grouping of the generationassets and IPP contracts of NPC, the following
  63. 63. criteria shall be considered:(1) A sufficient scale of operations and balancesheet strength to promote the financialviability of the restructured units;(2) Broad geographical groupings to ensureefficiency of operations but without theformation of regional companies orconsolidation of market power;(3) Portfolio of plants and IPP contracts toachieve management and operationalsynergy without dominating any part ofthe market or of the load curve; and(4) Such other factors as may be deemedbeneficial to the best interest of theNational Government while ensuringattractiveness to potential investors.(d) All assets of NPC shall be sold in an open andtransparent manner through public bidding, andthe same shall apply to the disposition of IPPcontracts;(e) In cases of transfer of possession, control,operation or privatization of multi-purpose hydrofacilities, safeguards shall be prescribed toensure that the national government may directwater usage in cases of shortage to protectpotable water, irrigation, and all otherrequirements imbued with public interest;(f) The Agus and the Pulangui complexes inMindanao shall be excluded from among the
  64. 64. generation companies that will be initiallyprivatized. Their ownership shall be transferredto the PSALM Corp. and both shall continue tobe operated by the NPC. Said complexes may beprivatized not earlier than ten (10) years fromthe effectivity of this Act, and except for Agus III,shall not be subject to Build-Operate-Transfer(B-O-T), Build-Rehabilitate-Operate-Transfer (B-R-O-T) and other variations thereof pursuant toRepublic Act No. 6957, as amended by RepublicAct No. 7718. The privatization of Agus andPulangui complexes shall be left to the discretionof PSALM Corp. in consultation with Congress;(g) The steamfield assets and generating plants ofeach geothermal complex shall not be soldseparately. They shall be combined and eachgeothermal complex shall be sold as one packagethrough public bidding. The geothermalcomplexes covered by this requirement include,but are not limited to, Tiwi-Makban, Leyte A andB (Tongonan), Palinpinon, and Mt. Apo;(h) The ownership of the Caliraya-Botokan-Kalayaan (CBK) pump storage complex shall betransferred to the PSALM Corporation;(i) Not later than three (3) years from theeffectivity of this Act, and in no case laterthan the initial implementation of openaccess, at least seventy percent (70%) ofthe total capacity of generating assets ofNPC and of the total capacity of the powerplants under contract with NPC located inLuzon and Visayas shall have beenprivatized: Provided, That any unsold
  65. 65. capacity shall be privatized not later thaneight (8) years from the effectivity of thisAct; and(ii) NPC may generate and sell electricity onlyfrom the undisposed generating assets andIPP contracts of PSALM Corp. and shallnot incur any new obligations to purchasepower through bilateral contracts withgeneration companies or other suppliers.SEC. 48. National Power Board of Directors. – Uponthe passage of this Act, Section 6 of R.A. 6395, asamended, and Section 13 of R.A. 7638, as amended,referring to the composition of the National PowerBoard of Directors, are hereby repealed and a newBoard shall be immediately organized. The new Boardshall be composed of the Secretary of Finance asChairman, with the following as members: theSecretary of Energy, the Secretary of Budget andManagement, the Secretary of Agriculture, theDirector-General of the National Economic andDevelopment Authority, the Secretary of Environmentand Natural Resources, the Secretary of Interior andLocal Government, the Secretary of the Department ofTrade and Industry, and the President of the NationalPower Corporation.CHAPTER VIPOWER SECTOR ASSETS AND LIABILITIESMANAGEMENTSEC. 49. Creation of Power Sector Assets andLiabilities Management Corporation. – There is herebycreated a government-owned and -controlled
  66. 66. corporation to be known as the “Power Sector Assetsand Liabilities Management Corporation”, hereinafterreferred to as the “PSALM Corp.”, which shall takeownership of all existing NPC generation assets,liabilities, IPP contracts, real estate and all otherdisposable assets. All outstanding obligations of theNPC arising from loans, issuances of bonds, securitiesand other instruments of indebtedness shall betransferred to and assumed by the PSALM Corp. withinone hundred eighty (180) days from the approval of thisAct.SEC. 50. Purpose and Objective, Domicile and Term ofExistence. – The principal purpose of the PSALM Corp.is to manage the orderly sale, disposition, andprivatization of NPC generation assets, real estate andother disposable assets, and IPP contracts with theobjective of liquidating all NPC financial obligationsand stranded contract costs in an optimal manner.The PSALM Corp. shall have its principal office andplace of business within Metro Manila.The PSALM Corp. shall exist for a period of twenty five(25) years from the effectivity of this Act, unlessotherwise provided by law, and all assets held by it, allmoneys and properties belonging to it, and all itsliabilities outstanding upon the expiration of its term ofexistence shall revert to and be assumed by theNational Government.SEC. 51. Powers. – The Corporation shall, in theperformance of its functions and for the attainment ofits objective, have the following powers:(a) To formulate and implement a program for the
  67. 67. sale and privatization of the NPC assets and IPPcontracts and the liquidation of NPC debts andstranded contract costs, such liquidation to becompleted within the term of existence of thePSALM Corp.;(b) To take title to and possession of, administer andconserve the assets transferred to it; to sell ordispose of the same at such price and under suchterms and conditions as it may deem necessaryor proper, subject to applicable laws, rules andregulations;(c) To take title to and possession of the NPC IPPcontracts and to appoint, after public bidding intransparent and open manner, qualifiedindependent entities who shall act as the IPPAdministrators in accordance with this Act;(d) To calculate the amount of the stranded debtsand stranded contract costs of NPC which shallform the basis for ERC in the determination ofthe universal charge;(e) To liquidate the NPC stranded contract costsutilizing proceeds from sales and other propertycontributed to it, including the proceeds from theuniversal charge;(f) To adopt rules and regulations as may benecessary or proper for the orderly conduct of itsbusiness or operations;(g) To sue and be sued in its name;(h) To appoint or hire, transfer, remove and fix the
  68. 68. compensation of its personnel: Provided,however, That the Corporation shall hire its ownpersonnel only if absolutely necessary, and as faras practicable, shall avail itself of the services ofpersonnel detailed from other governmentagencies;(i) To own, hold, acquire, or lease real and personalproperties as may be necessary or required in thedischarge of its functions;(j) To borrow money and incur such liabilities,including the issuance of bonds, securities orother evidences of indebtedness utilizing itsassets as collateral and/or through theguarantees of the National Government:Provided, however, That all such debts orborrowings shall have been paid off before theend of its corporate life;(k) To restructure existing loans of NPC;(l) To collect, administer, and apply NPC’s portion ofthe universal charge; and(m) To restructure the sale, privatization ordisposition of NPC assets and IPP contractsand/or their energy output based on such termsand conditions which shall optimize the valueand sale prices of said assets.SEC. 52. Power Sector Assets and LiabilitiesManagement Corporation, Meetings, Quorum andVoting. – The Corporation shall be administered, andits powers and functions exercised, by a Board ofDirectors which shall be composed of the Secretary of
  69. 69. Finance as the Chairman, the Secretary of Budget andManagement, the Secretary of the Department ofEnergy, the Director-General of the National Economicand Development Authority, the Secretary of theDepartment of Justice, the Secretary of the Departmentof Trade and Industry and the President of the PSALMCorp. as ex officio members thereof.The Board of Directors shall meet regularly and asfrequently as may be necessary to enable it to dischargeits functions and responsibilities. The presence at ameeting of four (4) members shall constitute a quorum,and the decision of the majority of three (3) memberspresent at a meeting where there is quorum shall bethe decision of the Board of Directors.SEC. 53. Powers of the President of PSALM Corp. –The President of PSALM Corp. shall be appointed bythe President of the Philippines. In the absence of theChairman, the President shall preside over Boardmeetings.The PSALM Corp. President shall be the ChiefExecutive Officer of PSALM Corp. and shall have thefollowing powers and duties:(a) To execute and administer the policies andmeasures approved by the Board, and takeresponsibility for the efficient discharge ofmanagement functions;(b) To oversee the preparation of the budget ofPSALM Corp.;(c) To direct and supervise the operation and internaladministration of PSALM Corp. and, for this

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