Title
ERC License Rules for Retail Electricity Suppliers
Law
Erc No. 03, S. 2006
Decision Date
Feb 1, 2006
ERC Resolution No. 10-05 establishes guidelines for the issuance of licenses to retail electricity suppliers in the Philippines, promoting fair competition, accountability, and consumer protection, while outlining the obligations and requirements for suppliers to participate in the retail electricity market.
licenses
guidelines
free competition

Objectives and governing principles

  • The Guidelines aim to promote free and fair competition and accountability of Electric Power Industry Participants to achieve greater operational and economic efficiency, rationalize electricity prices, and make them competitive and transparent.
  • The Guidelines aim to ensure consumer protection and enhance competitive operation of the retail electricity market.
  • No person other than a Distribution Utility serving its franchise area and persons authorized to supply electricity in Economic Zones may engage in supplying electricity to End-users in the Contestable Market unless the person has secured a Supplieras License from the ERC (Section 2).
  • A Supplieras License must stipulate the RES obligations consistent with the RES qualifications and criteria under the Guidelines and other applicable laws, rules, and regulations, and is issued only upon compliance with the required standards and requirements (Section 2).

Coverage: who must hold a license

  • The Guidelines apply to:
    • A Generation Company or its affiliate (Section 4[a]);
    • A Distribution Utility operating as a RES outside its franchise area (Section 4[b]);
    • An affiliate of a Distribution Utility regarding the Contestable Market within or outside the franchise area (Section 4[c]);
    • An Independent Power Producer (IPP) Administrator (Section 4[d]);
    • Any other person intending to sell, broker, or market electricity to the Contestable Market consistent with Republic Act No. 9136 and its IRR (Section 4[e]).
  • The ERC issues a separate set of Guidelines for Aggregators prior to implementation of the second phase of retail competition and open access (Section 4).
  • The ERC imposes a licensing requirement where the RES engages in selling, brokering, marketing, or aggregating electricity to End-users or participates in the WESM only through a valid ERC license (Section 3).
  • A license obtained by a qualified RES is valid within Philippine territories where retail competition and open access exist (Section 3).

Exemptions from needing a Supplieras License

  • The following are exempt from securing a Supplieras License:
    • Distribution Utilities within their franchise areas (Article I, Section 5[a]);
    • Persons authorized by appropriate entities to supply electricity within their Economic Zones (Article I, Section 5[b]).

Definitions established in the Guidelines

  • The Guidelines define Act as Republic Act No. 9136 (“Electric Power Industry Reform Act of 2001”) (Section 6).
  • The Guidelines define key terms including Affiliate, Aggregator, Applicant, Buyer or Concessionaire, Code of Conduct, Competition Rules, Contestable Market, Control, Distribution Utility (DU), Economic Zones (EZs), Electric Power Industry Participant, End-user, ERC, Generation Company, Generation of Electricity, Independent Market Operator (IMO), Independent Power Producer (IPP), IPP Administrator, Licensee, Market Operator, National Power Corporation (NPC), National Transmission Corporation (TRANSCO), Person, Philippine Stock Exchange (PSE), PSALM, Related Group, Retail Competition, Retail Electricity Supplier (RES), Retail Rate, Retail Supply Contract, Self-Generation Facility, Supplieras License, Supply of Electricity, UBP (Uniform Business Practices), Universal Charge, and WESM (Section 6).
  • Retail Electricity Supplier (RES) means any person or entity authorized by the ERC to sell, broker, market, or aggregate electricity to End-users (Section 6).
  • Supplieras License means the authority granted by the ERC to act as a Retail Electricity Supplier (Section 6).

Qualifications, restrictions, and licensing approval

  • A RES may be:
    • A natural person of legal age registered with DTI as engaged in the retail electricity supply business (Article II, Section 1[a]); or
    • A juridical person registered with DTI, the SEC and/or CDA as an entity engaged in retail electricity supply business (Article II, Section 1[b]).
  • An applicant must demonstrate financial capability through at least one credit standard:
    • An investment grade credit rating by a reputable credit bureau; or
    • Unused cash resources equivalent to the applicant’s expected monthly billings, or PHP 5 million, whichever applies; or
    • Proof of creditworthiness confirmed by certification of companies (including Generation Companies, Transco, and Distribution Utilities) that extended a credit line to the applicant (Article II, Section 2).
  • An applicant must demonstrate technical and managerial capability for reliable supply, including:
    • Understanding ERC rules, codes, and guidelines and applying them (Article II, Section 3[a]);
    • Setting up and operating an approved customer-transfer system enabling automated B2B communications/transactions (Article II, Section 3[b]);
    • Securing access/interconnection arrangements or required contracts with TRANSCO and one or more Distribution Utilities (Article II, Section 3[c]);
    • Securing generation in compliance with Market Operator requirements when applicable (Article II, Section 3[d]);
    • Meeting transactional requirements with the Market Operator or contractual obligations with industry participants when applicable (Article II, Section 3[e]);
    • Adequate staffing and employee training to meet service level commitments (Article II, Section 3[f]).
  • Ownership and directorship restrictions apply:
    • A RES or its affiliate, and any stockholder, director, officer, or relatives within the fourth (4th) civil degree of consanguinity or affinity, legitimate or common law, must not own any interest, directly or indirectly, in TRANSCO, its Buyer or Concessionaire, or the Independent Market Operator (Article II, Section 4[a]).
    • Except ex-officio government-appointed representatives, officers or directors of TRANSCO or its Buyer or Concessionaire cannot be officers or directors of any RES (Article II, Section 4[b]).
  • ERC must approve, disapprove, or reject an application within sixty (60) working days from filing, unless additional information is required or final action is postponed on reasonable grounds (Article III, Section 1).
  • An RES must secure a Supplieras License before engaging in supplying electricity to End-users in the Contestable Market (Article III, Section 1).
  • No RES may engage in selling, brokering, marketing, or aggregating electricity to End-users or participate in the WESM without a valid ERC license (Article III, Section 1).
  • The license is issued upon compliance with qualifications and requirements deemed necessary for proper implementation, including conditions related to cross-ownership, market power abuse, and anti-competitive behavior (Article III, Section 1).

Required documents and submissions

  • Applicants must submit basic corporate/registration and operational documents including:
    • Articles of Incorporation/Partnership with Certificate of Registration for juridical persons; Business Name Registration Certificate for single proprietorship (Article III, Section 2[a]-b);
    • Mayor’s Permit (Article III, Section 2[c]);
    • RES Information Sheet (form to be prescribed by ERC) (Article III, Section 2[d]);
    • Certified true copies of audited balance sheet, cash flow, and income statement for the two most recent twelve (12)-month periods, or for the life of the business if not in existence for at least two (2) years, if applicable (Article III, Section 2[e]);
    • If an affiliate: certified true copies of audited financial statements of the parent for the two most recent 12-month periods (Article III, Section 2[f]);
    • Projected Five-year Financial Statements and a Five-year Business Plan (outline to be provided by ERC) (Article III, Section 2[g]);
    • List of affiliates engaged in generation, distribution, and retail supply, including their business addresses (Article III, Section 2[h]);
    • Sworn statement to comply with the Code of Conduct and Competition Rules (Article III, Section 2[i]).
  • Applicants must submit notarized sworn conflict-of-interest assurances:
    • A sworn statement that the applicant or affiliate, and covered stockholders/directors/officers/relatives within the fourth (4th) civil degree, do not own interests in TRANSCO, its Buyer or Concessionaire, or the Independent Market Operator; and that no officer or director of the applicant is an officer or director of TRANSCO or its Buyer or Concessionaire (Article III, Section 2[j]).
  • Applicants must also submit:
    • Proof of payment of application fees (Article III, Section 2[k]);
    • List of directors and officers, including curriculum vitae (Article III, Section 2[l]);
    • Other information or documents the ERC may require (Article III, Section 2[m]).
  • All submissions must be certified under oath by the applicant or a duly authorized officer for juridical persons (Article III, Section 6).
  • Renewal of license requires submission of:
    • Application for Renewal of License;
    • Proof of payment of Renewal Fees;
    • Security Deposit commensurate to the amount collected from customers, if applicable;
    • Business permit;
    • Latest RES Information Sheet;
    • Recent annual report to shareholders with audited financial statements; and
    • Such other information or documents the ERC may require (Article III, Section 4).

Security deposits, failure grounds, and license fees

  • If a RES intends to collect deposits, or has collected deposits from customers based on projected sales, the RES must post a security deposit computed based on the sales value it will collect or has collected from customers (Article III, Section 3).
  • The RES must deposit collected amounts in escrow, making the deposit unavailable for use in financing working capital requirements (Article III, Section 3).
  • The RES must submit to ERC either:
    • a certification from a commercial bank that the RES can avail of an escrow facility; or
    • a certification stating the amount deposited in escrow (Article III, Section 3).
  • The RES must pay customers an annual interest on collected deposits equivalent to the interest earnings of the escrowed amount (Article III, Section 3).
  • Failure to submit the requirements to ERC is a ground for denial of application or renewal (Article III, Section 5).
  • Application and license fees are fixed:
    • Application fee: PHP 1,500.00 upon filing of application or renewal (Article IV).
    • RES license fee: seventy five percent (75%) of each PHP 100 of subscribed and paid-up capital stock, or PHP 10,000.00, whichever is higher, payable upon issuance of a Supplieras License (Article IV).

License term, reporting, and confidentiality

  • A Supplieras License has a term of three (3) years, renewable at the end of each term (Article V).
  • The Supplieras License is non-transferable and remains valid for its stated terms unless revoked by ERC (Article V).
  • The RES must apply for renewal no later than sixty (60) days before expiration of its current license (Article V).
  • Each RES must file monthly reports (or as ERC deems necessary) on a form prescribed by ERC, containing:
    • Average prices, computed as total revenue divided by total kilowatt-hour sales, broken down by customer category (residential, small general service, large general service) and by transmission and distribution service territories;
    • Revenues from kilowatt-hour sales to customers;
    • Customers list and type served, and deposits collected from each;
    • Bank certification stating escrow amount; and
    • Other information ERC deems necessary or useful (Article VI, Section 1).
  • ERC treats certain information identified by the applicant as restricted with strict confidentiality for good cause shown, subjecting it to protective measures (Article VI, Section 2).

RES obligations: unbundling, interfaces, rate rules

  • If a RES is also engaged in power generation and distribution, it must ensure supply activities and rates are functionally and structurally unbundled from generation and distribution businesses, with no cross-subsidization, consistent with ERC rules and its ERC-approved Business Separation and Unbundling Plan (Article VII, Section 1).
  • A RES must provide updated information in an ERC-prescribed format to enable informed customer choices in the contestable market (Article VII, Section 2).
  • A RES must adopt and use a B2B interface system approved by ERC at all times (Article VII, Section 3).
  • A RES must identify and segregate in bills the components of the Retail Rate as: generation, transmission, distribution, supply, and other related charges, and must identify and segregate the components of its Supplieras Charge as required by law (Article VII, Section 4).
  • A RES must comply with Creditworthiness Criteria and provide required financial security to ensure proper performance, and must ensure customer advance deposits are covered by security deposits at all times (Article VII, Section 5).
  • A RES sourcing power from WESM must comply with the WESM Rules at all times (Article VII, Section 6).
  • A RES must comply with Competition Rules on abuse of market power, cartelization, and anti-competitive or discriminatory behavior (Article VII, Section 7).
  • A RES must collect Universal Charge from all End-users on a monthly basis and must comply with ERC rules and guidelines on collection and remittances/disbursements (Article VII, Section 8).
  • Cessation of operations requires:
    • Notice to ERC at least thirty (30) days before ceasing operations;
    • Proof of refund of monies owed to customers; and
    • A settlement plan or proof of payment of amounts owed to a DU, TRANSCO, WESM, or a Generation Company;
    • After these requirements, the Supplieras License is deemed cancelled (Article VII, Section 9).
  • A RES must inform ERC of any material change to the information provided in the license application within thirty (30) days from the occurrence of the event (Article VII, Section 10).
  • A RES must comply with the Act and its IRR; the Philippine Distribution Code; Distribution Services and Open Access Rules (DSOAR); Code of Conduct rules on ethical and truthful advertising, conflict of interest, etc.; UBP; and all applicable ERC rules and reporting requirements under these Guidelines (Article VII, Section 11).

Administrative sanctions and enforcement monitoring

  • All persons already engaged in retail supply of electricity must secure a license from ERC within ninety (90) days from ERC’s declaration of open access (Article VIII).
  • Any person acting as a RES without a valid ERC license is subject to appropriate sanctions under existing laws, rules, and regulations, except for those exempted in Article I, Section 5 (Article VIII).
  • ERC imposes appropriate fines and penalties, including revocation or suspension of license, for violations or non-compliance with the Guidelines, pursuant to Guidelines to Govern the Imposition of Administrative Sanctions in the Form of Fines and Penalties Pursuant to Section 46 of R.A. 9136 (Article VIII).
  • ERC monitors RES compliance with the license terms and conditions and with the Guidelines (Article IX).

Separability and effectivity

  • If any section is declared unconstitutional or invalid, the remaining sections continue in full force and effect (Article X).
  • The Guidelines take effect on the 15th day after publication in a newspaper of general circulation (Article XI).

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