Electric Power Industry Reform Act

Law Summary

Scope

Framework for restructuring the electric power industry.
Privatization of NPC assets.
Transition to competitive structure.
Definition of responsibilities for government agencies and private entities.

Definitions of Key Terms

Provides comprehensive definitions, including:
- Aggregator, Ancillary Services, Captive Market, Central Dispatch, Co-Generation Facility, Commission (ERC), Concession Contract.
- Contestable Market, Customer Service Charge, Demand Side Management.
- Distribution-related terms like Distribution Code, Distribution Utility, Distribution Wheeling Charge.
- Electric Cooperative, Electric Power Industry Participant, End-user.
- Generation Company, Grid, Grid Code, Independent Power Producer (IPP).
- Various subsidies types and universal charge.
- Transmission-related terms and others.

Organization of the Electric Power Industry

Industry divided into four sectors: generation, transmission, distribution, and supply.

Generation Sector

Generation is competitive and open.
New companies need ERC certification and clearances.
Generation not considered public utility operation; no national franchise needed.
Prices generally unregulated.
V.A.T. zero-rated sales.
ERC monitors market power and may require financial statements.

Transmission Sector

Transmission is a regulated common carrier business.
ERC sets standards for voltage levels distinguishing transmission and subtransmission.

Creation of National Transmission Corporation (TRANSCO)

TRANSCO takes over NPC transmission assets within six months.
Wholly owned by PSALM Corp.
Subtransmission assets segregated and may be transferred to qualified distribution utilities.
TRANSCO manages planning, operation, and maintenance of transmission facilities.
TRANSCO can exercise eminent domain powers.

Functions and Responsibilities of TRANSCO

System operator for transmission and subtransmission.
Provide open, nondiscriminatory transmission access.
Maintain grid reliability, adequacy, security.
Improve and expand facilities per Grid Code and Transmission Development Plan.
Central dispatch of generation facilities.

Corporate Powers and Governance of TRANSCO

Board of Directors with Secretary of Finance as Chair.
Board includes representatives from DOE, DENR, TRANSCO President, and presidential appointees.
Board sets policies, staffing, compensation.
President of TRANSCO supervises operations and represents corporation.
Salaries exempt from Salary Standardization Law.

Revenues and Charges

TRANSCO transmission charges are subject to ERC approval.
May engage in related business to maximize asset utilization.
Portion of income from related business reduces wheeling rates.

Privatization of TRANSCO

PSALM Corp. to submit privatization plan within 6 months.
Award by open competitive bidding for sale or concession.
Requirements for financial and technical capability of awardees.

Distribution Sector

Distribution is regulated common carrier business requiring national franchise.
Distribution utilities include private companies, coops, LGUs.

Functions of Distribution Utilities

Provide distribution services with open, nondiscriminatory access.
Charge wheeling fees and connection fees.
Supply captive markets efficiently.
May pursue structural reforms for efficiency.
Submit compliance reports and development plans.
Exercise eminent domain.

Distribution Wheeling and Retail Rates

Wheeling charges subject to ERC approval.
Retail rates regulated based on cost recovery and efficiency.
Utilities must unbundle rates and identify components in bills.

Related Businesses of Distribution Utilities

May engage in related businesses.
Limit on income applied to reduce wheeling charges.
Separate accounts to avoid cross-subsidization.

Franchising

Congress exclusively grants franchises for transmission and distribution.
Existing franchises allowed full term.
For electric cooperatives, renewals managed by NEA for 5 years post-enactment.

Ownership and Shareholding

Ownership of distribution utilities limited to 25% voting shares for persons/entities, unless listed in Philippine Stock Exchange.
Small distribution utilities required to list within five years.
Electric cooperatives exempted.

Supply Sector

Supply considered a public interest business.
Suppliers to contestable market require ERC license.
Suppliers not public utilities and not required to secure national franchise.
Prices not regulated but subject to rules on anti-competitive conduct.

Wholesale Electricity Spot Market

DOE to establish within one year.
Market determines price for variations not under bilateral contracts.
Rules formulated with industry participants, ERC approves.
Autonomous market operator established, then independent entity formed.
Coverage includes generation, distribution, suppliers, bulk consumers.
NEA may guarantee purchases for electric cooperatives.
ERC may suspend or declare market failure in emergencies.

Retail Competition and Open Access

Implemented not later than 3 years, subject to conditions including wholesale market and privatization milestones.
Contestable market thresholds gradually lowered over time.
Electric cooperatives have delayed implementation (5 years).

NPC Stranded Debt and Contract Cost Recovery

National government assumes debt up to P200 billion.
ERC determines reasonable recovery period (15-25 years).
Charges reflected separately in billing with annual reviews.

Distribution Utilities Stranded Contract Cost Recovery

Similar provisions as NPC with filing requirements.
ERC reviews fairness and allows mitigation efforts.
Quarterly reporting and true-up mechanisms established.

Universal Charge

Imposed on all electricity end-users for stranded debt, missionary electrification, tax equalization, environment fund, and cross subsidies.
Collected monthly and remitted to PSALM Corp.
Non-bypassable and transparent fund administration.

Royalties and Tax Treatment of Indigenous Energy

Reduced royalties/taxes to achieve parity with imported fuels.
ERC to reduce power rates accordingly.

Unbundling of Rates and Functions

NPC and distribution utilities to file unbundled rates.
ERC approves and ensures removal of cross subsidies.
Functional and structural unbundling mandatory.

Role of Department of Energy (DOE)

Supervises restructuring.
Formulates and updates energy policies and plans.
Facilitates private investment and renewable energy use.
Coordinates education campaign about restructuring.
Jointly establishes wholesale electricity spot market.
Monitors and enforces compliance.

Creation of Energy Regulatory Commission (ERC)

Independent quasi-judicial body replacing ERB.
Composed of Chair and four members with expertise.
Terms of 7 years without reappointment.
Security of tenure and conflict of interest provisions.

ERC Powers and Functions

Promotes competition and customer choice.
Approves rates and charges.
Enforces rules on market conduct.
Regulates wholesale electricity spot market.
Sets performance and financial standards.
Handles complaints and consumer protection.
Imposes fines and penalties.
Publishes decisions for transparency.
Investigates anti-competitive behavior.

Cross Ownership and Anti-Competitive Safeguards

Limits on ownership shares in generation and distribution.
Prohibitions on cross-ownership between sectors and close relatives.
ERC empowered to enforce competition rules and penalize abuses.

Penalties

Fines range from P50,000 to P50 million for violations.
Prison penalties for market abuses and board members.
Additional dismissal and deportation for government officials or aliens.
Administrative sanctions and criminal actions possible.

Privatization of NPC Assets

PSALM Corp. tasked with privatization plan.
Assets grouped for viability and competition.
Open bidding mandated.
Specific provisions for hydro and geothermal assets.
Timelines for privatizing majority of NPC assets.

National Power Board

Composed mainly of government secretaries and NPC President.

Creation of PSALM Corporation

Government-owned corporation managing privatization and debt liquidation.
Holds NPC assets, liabilities, IPP contracts.
Has corporate powers including borrowing, selling assets, rulemaking.

Governance of PSALM Corp

Board composed of cabinet members and PSALM President.
President appointed by the President of the Philippines.

Additional Provisions

Electric cooperatives may convert to stock corporations.
NEA develops programs to prepare cooperatives for deregulation.
Isolated villages may have alternative electric service providers.
Debt of electric cooperatives may be assumed by PSALM.
Reporting requirements for DOE.
Creation of Joint Congressional Power Commission for oversight.
Separation benefits for displaced government employees.
Salary administration subject to Presidential approval.
Environmental compliance mandated.
Benefits for host communities protected.
NPC transition supply contracts regulated.
Review and renegotiation of IPP contracts.
NPC continues missionary electrification via SPUG.
Emergency powers for additional capacity.
Mandated residential rate reduction.
Lifeline rates for marginalized consumers established.
Phase-out of cross subsidies over three years.
Educational campaigns for consumers.
Implementing Rules and Regulations to be promulgated.

Legal and Miscellaneous Provisions

Injunctions against Act implementation allowed only by Supreme Court.
Separability and repealing clauses specified.
Act effectivity after publication in two national newspapers.