Title
Supreme Court
Promoting Use of Microgrid Systems in PH
Law
Republic Act No. 11646
Decision Date
Jan 21, 2022
The Microgrid Systems Act aims to promote the use of microgrid systems for rural electrification in the Philippines, allowing qualified entities to provide integrated power generation and distribution services in unserved and underserved areas, while prioritizing low-cost and renewable energy sources.

Law Summary

Declaration of Policy

  • The State aims to pursue sustainable rural development and poverty reduction through universal energy access.
  • Accelerate total electrification ensuring quality, reliable, and affordable electricity in unserved and underserved areas.
  • Promote private sector involvement in electrification.
  • Foster competitive environment prioritizing low-cost, indigenous, renewable, and environment-friendly energy sources.
  • Ensure a supportive regulatory environment encouraging technology and innovation in electric power.

Scope and Application

  • Applies to development of microgrid systems specifically in unserved and underserved areas nationwide.

Key Definitions

  • Defines essential terms including Authority to Operate (ATO), Competitive Selection Process (CSP), Decentralized Power Generation (DPG), Distribution System, Distribution Utility (DU), Electric Cooperative (EC), End-user, Grid-tied and Isolated Microgrid systems, Local and National Total Electrification Roadmaps (LTER, NTER), Microgrid System Provider (MGSP), Universal Charge for Missionary Electrification (UCME), Unserved and Underserved Areas, and more.

Microgrid Systems in Unserved and Underserved Areas

  • MGSPs authorized to provide power generation and distribution in designated areas following prescribed procedures.
  • Only isolated microgrid systems and grid-tied systems operating in island mode permitted.
  • Areas with existing appropriations for electrification are excluded from certain provisions.

Microgrid System Providers (MGSPs)

  • MGSP operations are not considered public utility operations; franchise from Congress is not required.
  • MGSPs must secure ATO from ERC prior to operations.
  • Eligible entities include private corporations, LGUs, cooperatives, NGOs, generation companies, DUs, etc., compliant with technical and financial requirements.
  • Entities maintaining MGSPs must keep separate accounts, without subsidizing the MGSP operations.

Waiver of Obligation for Distribution Utilities

  • DUs waive obligation to supply and provide distribution in areas awarded to MGSPs.
  • MGSPs gain exclusive rights and obligations under Microgrid System Service Contracts (MSC) aligned with NPC's missionary electrification mandate.

Competitive Selection Process (CSP) for DOE Declared Areas

  • DOE must declare unserved and underserved areas and conduct CSPs prioritizing renewable, low-cost energy.
  • CSP must be simple, uniform, transparent, completed within 90 calendar days using competitive methods such as auctions or Swiss challenge.
  • DU may tender lower offers within 7 days of CSP results within their franchise areas.
  • Award and contract execution provide provisional authority to MGSPs pending ERC hearing and final decision.
  • NPC obligated to conduct missionary electrification if no MGSP is awarded.

Procedure for DU Identified Unserved Areas

  • DU may identify unserved areas in its LTER for electrification by DU operated microgrid systems.
  • MGSPs may submit competitive all-in price offers to the DOE or NPC.
  • The DU has the right to tender a lower offer; if not, MGSP with the lowest offer shall be awarded and enter into MSC.
  • DU obligated to electrify unserved area through its microgrid system if no MGSP offers emerge within prescribed time.
  • Procedures to be simple, prioritized for renewable energy, transparent, and completed within 90 calendar days.

Universal Charge for Missionary Electrification (UCME)

  • UCME available only to MGSPs and DU operated microgrid systems serving unserved or underserved areas not connected to grid.
  • DOE to rationalize UCME availment considering equity and economic progress.

Powers and Functions of the Energy Regulatory Commission (ERC)

  • Issue simplified permits and ATOs for MGSPs and DU operated microgrids within prescribed timeframes.
  • Develop and enforce technical and service performance standards compliant with existing distribution and grid codes.
  • Review and act on MSCs promptly.
  • Exercise rate-making powers including subsidy evaluations, equitable asset recovery, and approval of connection rates.
  • Monitor compliance of MGSPs.
  • Has exclusive original jurisdiction over disputes and compliance issues under the Act, except for competition cases.

Powers and Functions of the Department of Energy (DOE)

  • Publish annual National Total Electrification Roadmap (NTER).
  • Streamline permitting for MGSPs and DU microgrid systems.
  • Cluster DUs for roster submission and CSP conduct.
  • Set timeframes for LTER and DDP compliance.
  • Receive and validate petitions to declare unserved or underserved areas.
  • Identify and regularly publish lists of unserved and underserved areas.
  • Prepare standard MSC templates.
  • Conduct CSPs or authorize NPC/NEA to do so.
  • Monitor MGSP operations and MSC compliance, conduct reviews on reasonable grounds.
  • Determine transition procedures between various service providers.

Role of the National Electrification Administration (NEA)

  • Assist Electric Cooperatives (ECs) in preparing LTERs.
  • Evaluate submitted unserved and underserved areas and recommend to DOE.

Role of the National Power Corporation (NPC)

  • Prepare and execute NPC Graduation Plan.
  • Continue missionary electrification in areas lacking MGSP participation.
  • Conduct CSPs when authorized.
  • Execute MSCs with awarded MGSPs.
  • Manage collection and administration of UCME.
  • Streamline UCME subsidy processing and timely release.

Responsibilities of Distribution Utilities (DUs)

  • May form joint ventures for microgrid operations; must maintain separate accounting.
  • Allowed to impose separate rates in identified unserved areas served by DU operated microgrids.
  • Prohibited from cross-subsidizing between these specific end-users and other DU customers.
  • Must prepare and submit comprehensive, validated LTER and integrate into DDP.

Responsibilities of MGSPs and DU Operated Microgrid Systems

  • Build, operate, maintain microgrid systems per MSC and laws.
  • Meet load requirements, fulfill electrification programs, and comply with obligations.
  • Submit required reports to ERC and DOE.
  • Ensure end-user safety.
  • MGSPs exempt from certain requirements such as public listing and market share caps under existing laws.
  • End-users in unserved or underserved non-grid areas are exempt from feed-in tariffs and universal charges.

Expiration of MGSP Service Contracts

  • Upon MSC expiration and distribution grid extension, DUs may acquire microgrid systems subject to ERC approval.
  • Resumption of DU obligation terminates UCME entitlement in the area.
  • If DU does not acquire or no grid extension exists, CSP conducted to award service provider.
  • Incumbent MGSP may submit lower tender in subsequent CSP.
  • ERC determines subsidy eligibility.

Franchise Extension

  • Presence of MGSPs in a DU franchise area does not disqualify DU from renewing franchise or certificate.

Permitting Process

  • Energy Virtual One-Stop Shop Act applies, with time frames halved compared to original law unless stated otherwise.

Institutional Strengthening

  • DOE to strengthen Electric Power Industry Management Bureau (EPIMB) with adequate staffing and budget.
  • ERC to create a Special Division for the Act's implementation with sufficient resources.

Transitory Provisions

  • Existing benefits and incentives for QTPs remain unaffected.
  • No diminution of rights under existing laws or contracts.

Prohibited Acts

  • Refusal to allow microgrid installation by MGSPs when compliant.
  • Refusal to transfer service provision to MGSP or DU as required.
  • Imposition of unauthorized contractual terms or charges.
  • Failure to comply with functions and timelines under relevant sections.

Penalties

  • Severe criminal penalties including imprisonment up to 8 years and fines up to PhP100 million for major violations.
  • Lesser penalties for other violations with fines and imprisonment proportional to offense.
  • Aiding or abetting violations liable equally.
  • Officers of corporations and government officials held liable; government officials also face administrative sanctions from suspension to dismissal.

Congressional Oversight

  • Joint Congressional Energy Commission to oversee implementation.
  • DOE and ERC to submit annual implementation reports, including legislative gaps and recommendations.

Implementing Rules and Regulations

  • DOE to issue implementing rules within 60 working days post-effectivity.

Amendatory and Repealing Provisions

  • Amends inconsistent provisions from prior laws including the Public Service Act, ERC creation, Electric Power Industry Reform Act, and others.
  • Repeals or modifies inconsistent existing laws, issuances, rules, and franchises.

Separability Clause

  • Declared unconstitutional provisions do not affect validity of the rest of the Act.

Effectivity

  • The Act takes effect 15 days after publication in the Official Gazette or a newspaper of general circulation.
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