Local water utility system policy and administration

Policy, purpose, and national objective

Section 2 declares that creating, operating, maintaining, and expanding reliable and economically viable and sound water supply and wastewater disposal systems for Philippine population centers is a high-priority national policy objective.
Section 2 declares that forming independent, locally controlled public water districts is the most feasible and favored institutional structure.
Section 2 requires that local water supply and wastewater disposal systems be operated through local water districts to the greatest extent practicable.
Section 2 provides for a local option basis to encourage formulation of districts and transfer of existing facilities.
Section 2 declares that non-local funding requirements (other than local revenues) must be channeled through and administered by a national-level institution responsible for: rules and regulations, system integration/joint investments/operations when warranted, uniform standards, personnel training, and sound operating and accounting procedures.

Key definitions and covered entities

Section 3(a) defines “Act” as “Provincial Water Utilities Act of 1973.”
Section 3(c) defines “Administration” as the Local Water Utilities Administration chartered under Title III.
Section 3(d) defines “NEDA” as the National Economic and Development Authority.
Section 3(e) defines “Board” as the board of directors of a district.
Section 3(f) defines “Contracts” as all agreements, including leases, conveyances, and obligations.
Section 3(g) defines “Districts” as local water districts formed under Title II.
Section 3(h) defines “Local Water Utility” as any district, city, municipality, province, investor-owned public utility, or cooperative corporation that owns or operates a water system serving an urban center in the Philippines, excluding the Metropolitan Waterworks and Sewerage System (MWSS) and any system operated by the Bureau of Public Works as successor to the Wells and Springs Department of the National Waterworks and Sewerage Authority.
Section 3(i) defines “Person” as a natural person, corporation, cooperative, partnership, association, city, municipality, or other juridical entity.
Section 3(j) defines “Property” as all real and personal property, including water, water rights, works, easements, and rights of way.
Section 3(l) defines “Trustees or Board of Trustees” as the Board of Trustees of the Administration.

Formation and organization of districts

Section 5 allows formation of local water districts to: (a) acquire/install/improve/maintain/operate water supply and distribution systems for domestic, industrial, municipal, and agricultural uses; (b) provide/maintain/operate wastewater collection, treatment, and disposal facilities; and (c) conduct other incidental functions related to water resource development/utilization/disposal within district boundaries.
Section 6 states that the Act is the source of authorization and power to form and maintain a district, and once formed, a district is not under the jurisdiction of any political subdivision and is governed by the Act.
Section 6 requires district formation by a resolution enacted by the legislative body of a city, municipality, or province, containing:
- the district name including the locality name followed by “Water District” (Section 6(a));
- a boundary description (a district may include one or more municipalities/cities/provinces or portions) (Section 6(b));
- intent to transfer any and all waterworks/sewerage facilities of the locality to the district pursuant to the contract authorized under Section 31(b) (Section 6(c));
- purpose statement including those in Section 5 (Section 6(d));
- names of initial directors with their term expiration dates (Section 6(e));
- acknowledgment that dissolution is only on grounds and under conditions in Section 44 (Section 6(f)); and
- acknowledgment of powers, rights, and obligations in Section 36 (Section 6(g)).
Section 6 prohibits any formation resolution from stating or implying that the local legislative body can dissolve, alter, or affect the district beyond what the Act provides.
Section 7 requires filing: a certified copy of the resolution forming the district must be forwarded to the Office of the Secretary of the Administration, and if the Administration finds conformity with Section 6 requirements and Section 2 policy objectives, the resolution is duly filed; the district is deemed duly formed and existing on the date of filing.
Section 8 sets district board composition at five Philippine citizens of voting age and residents within the district, with specific sectoral representation (civic-oriented service clubs; professional associations; business/commercial/financial organizations; educational or religious institutions; women’s organizations) and no director may be an elected government official.
Section 15 requires the board’s first meeting no later than 45 days after formation; at that first meeting and at the first meeting of each odd-numbered year, the board elects chairman, vice-chairman, secretary, and treasurer (the secretary and treasurer may be non-board members and may be held by the same person).
Section 16 provides that a majority of the board present in person constitutes a quorum, but no resolution or motion becomes effective without the affirmative vote of a majority of the authorized number of board members.

Directors appointment, terms, compensation, and liability

Section 9 provides that board members are appointed by the appointing authority from a nominee list if submitted under Section 10; if none are submitted, the appointing authority appoints any qualified person from the category.
Section 3(b) defines appointing authority:
- if more than seventy-five percent (75%) of total active water service connections are within a city or municipality boundary, the mayor of that city or municipality appoints;
- otherwise, the governor appoints;
- if district boundaries include parts of more than one province, and governors appoint, appointment power rotates among the involved governors, with initial appointments made by the governor in the province having the greatest number of service connections.
Section 10 sets nominations timing and procedure:
- by October 1 of each even-numbered year, the district secretary contacts represented organizations to solicit nominations for terms expiring December 31;
- each organization may submit one written nomination on or before November 1;
- the secretary transmits the list to the appointing authority on or before November 15;
- the appointing authority appoints on or before December 15;
- if the appointing authority fails to appoint by December 15, the seated directors constituting a quorum select from the nominee list by majority vote.
Section 10 provides that initial nominations for all five board seats are solicited by the legislative body(ies) at the time of adoption of the formation resolution; 30 days thereafter, nomination lists are submitted to: the provincial governor if the resolution was adopted by a provincial board, or the mayor if adopted by a city or municipal council, who selects initial directors within 15 days after receipt.
Section 11 sets initial director terms: two directors for maximum two years, two for maximum four years, and one for maximum six years; later terms are six years commencing January 1 of odd-numbered years, structured so at least one and not more than two directors’ terms expire on December 31 of each even-numbered year; directors may be removed for cause only.
Section 12 governs vacancies:
- if vacancy occurs more than six months before term expiration, remaining directors within 30 days request/select nominations through the secretary, and the appointing authority appoints from nominees submitted within 30 days thereafter; if no nominations are submitted, the appointing authority appoints any qualified person;
- if vacancy occurs within the last six months, the remaining directors fill the vacancy by a majority vote of remaining members constituting a quorum; the replacement serves only the unexpired term.
Section 13 sets compensation: each director receives, per meeting attended, compensation equal to one percent (1%) of the mayor’s monthly salary for a first class city; no other compensation is allowed.
Section 14 provides that directors are not personally liable for actions of the district.

Board powers, by-laws, administration system

Section 17 provides that district powers, privileges, and duties are exercised by and through the board, with executive/administrative/ministerial powers delegated by the board to officers or agents.
Section 18 limits the board’s role to policy-making and prohibits detailed management by the board.
Section 19 requires the board to adopt by-laws at its first meeting and allows amendments thereafter; by-laws amendments require 30 days public notice and a public hearing.
Section 20 requires the board to prescribe by resolution a system of business administration and accounting patterned upon Administration standards; auditing must be by a certified public accountant not in the government office.
Section 21 designates the Philippine National Bank as the district’s depository unless impractical; reserves for capital improvements may be deposited with the Administration.
Section 22 requires district contracts to be entered into by or under board authority; the board may delegate contracting power to officers/agents by resolution with board-imposed conditions and restrictions.
Section 23 requires the board to appoint at the first meeting or as soon as practicable: general manager, auditor, and attorney, defining duties and fixing compensation; these officers serve at the pleasure of the board.
Section 24 gives the general manager (not a director), subject to board approval, full supervision and control over maintenance, operation, construction, and administrative facilities, including management prerogatives under district personnel rules and regulations.

Employment, civil service exemption, and labor limits

Section 25 exempts the district and its employees engaged in proprietary functions from the Civil Service Law.
Section 25 provides that collective bargaining is available only to personnel below supervisory levels.
Section 25 caps total employee compensation: the total of salaries, wages, emoluments, benefits, or other compensation paid to all employees in any month must not exceed fifty percent (50%) of average net monthly revenue, where net revenue is income from water sales and sewerage service charges less pro rata share of debt service and expenses for fuel or energy for pumping during the preceding fiscal year.

District powers over water, sewerage, land use, and utilities

Section 26 authorizes districts to exercise all powers expressly granted or necessarily implied or incidental to stated powers and purposes.
Section 27 authorizes districts to purchase, construct, or acquire works, water, water rights, land, and rights/privileges useful or necessary to convey, supply, store, collect, treat, dispose of, or otherwise use water for any purpose authorized; district acquisition of water/water rights requires cooperation with existing government agencies.
Section 28 authorizes water sales within the district under uniform schedules to any water user without preference; schedules may provide differential rates by category and quantity blocks.
Section 28 allows the district to require an application for service, payment of established charges/deposits, and execution of a water service contract as conditions of water sale.
Section 28 allows service to public faucets or hydrants only after executing an application and service contract with the government entity to establish or maintain the faucets/hydrants, with payment on the same manner as regular domestic service pursuant to district rules.
Section 28 exempts a district holding a valid Certificate of Conformance or a Conditional Certificate of Conformance from regulation by the Public Service Commission or its successors.
Section 29 authorizes sewerage powers: districts may require, construct, operate, and furnish sewerage/waste/storm water facilities and services within or without the district, but can furnish outside services only through facilities designed primarily to serve inside the district.
Section 29 allows required building connections: once a sewer system is provided in any area of the district, the district may require all human-use buildings to connect within a reasonable time if the property is within 35 meters of an existing sewer main.
Section 29 empowers nuisance and service deprivation: after due notice and refusal by the property owner to connect, and after notice in writing of at least 10 days, the district may declare further maintenance/use of cesspools, septic tanks, or other local means of disposal a public nuisance and deprive the property owner of any and all services provided by the district for as long as refusal persists.
Section 30 grants rights of way for works on government or political subdivision-owned lands and authorizes construction along, under, or across streets, watercourses, railways, or conduits in a manner affording security for life and property, requiring environmental aspects to be considered in planning.
Section 31 authorizes district contracts for district functions, but prohibits delegation of discretionary powers vested in the board by the Title.
Section 31(a) authorizes cooperative or joint performance agreements with the Government or its agencies or political subdivisions.
Section 31(b) allows “in-lieu share” payment in incident to acquisition/transfer of an existing water system: the district may contract to pay in lieu of taxes an annual amount not exceeding three percent (3%) of the district’s gross receipts from water sales in any year.
Section 31(c) permits MWSS-related negotiation and execution: if the city/municipality/province has not reached agreement with MWSS under Republic Act 6234, the district may, with local government consent, act for local interests in negotiating and executing final settlement of consequences of MWSS involvement.
Section 32 authorizes district protection of water: the district may commence, maintain, intervene in, defend, and compromise actions to prevent interference with or deterioration of water quality or natural flow of surface/stream/groundwater used or useful for district purposes or common benefit lands/inhabitants.
Section 32 authorizes district rules governing drilling, maintenance, and operation of wells within boundaries for purposes other than single-family domestic use; wells operated in violation are deemed interference.
Section 33 authorizes pipeline capacity and hydrants for fire protection upon prior agreement with the principal fire protection entity in the district, providing reimbursement over the reasonable life of the facilities for installation and operation costs.

District financial powers: notes, bonds, and fund handling

Section 34 requires the treasurer to receive all monies belonging to the district in trust for its use and benefit; monies are to be deposited in the Philippine National Bank where practicable (except payment of bonds and interest), and district money may be paid out only upon a warrant drawn and executed by authorized district officers.
Section 35 authorizes negotiable promissory notes with maturity not later than two years and limits total outstanding notes at any time to not more than twenty percent (20%) of the district’s annual gross revenues payable from all revenue sources.
Section 36 authorizes borrowing to raise funds for authorized public improvements and issuance of revenue bonds as special obligations payable solely from specified revenues and funds.
Section 36(a) requires adoption of a board resolution plan describing works and estimating all costs including interest on bonds payable before expiration of one year from completion/acquisition when general funds are inadequate.
Section 36(b) requires revenue bonds be issued in the district name as district obligations, payable/redeemable from district revenue.
Section 36(c) allows the board to authorize notice of redemption; bonds are subject to call and redemption prior to maturity and must state this on their face; no bond may be subject to call/redemption before fixed maturity unless it contains such recital.
Section 36(d) requires specific statements on the face of each bond, including that: (1) redemption principal and interest are secured solely by a first and direct charge and lien on all water sale revenues; (2) principal and interest are not a general debt/liability/obligation of the district; and (3) the bond is subject to call/redemption if the board provides. Bonds must be consecutively numbered, bear board-prescribed dates, state issuance date deemed the date appearing on face, signed by the chairman with attestation by the secretary, allow secretary signing of interest coupons, and require the district seal affixed.
Section 36(e) limits maturity: bonds must be paid in cash and in full at board-designated time/place, but no maturity may exceed 40 years from bond date.
Section 36(f) provides bondholder remedies: upon default by the district on principal or interest, any bondholder may sue in any court of competent jurisdiction to compel payment and to require appointment of a receiver, with receiver authority over property/operations including power to increase rates until default is cured.

Rates, charges, sewer stand-by, and assessments

Section 37 allows district water sale without preference under uniform rate schedules to all water users in the district.
Section 37 authorizes rate schedules with differential rates for different categories and different quantity blocks.
Section 37 requires rates, so far as practicable, to result in revenues that: reimburse new customers for costs of installing new services and meters; provide revenue from all deliveries/services; pay operating expenses; provide maintenance and repairs; provide reasonable surplus for replacement/extension/improvements; and pay interest and provide a sinking or other fund for debt as due.
Section 38 allows sewer rates and charges and allows a sewerage/wastewater stand-by or availability charge when sewer service is available and no connection is made.
Section 38 allows collection of sewer charges with water charges.
Section 38 permits discontinuance of services for nonpayment of all or part of the billed charges, including water, sewer, and other district services, without prohibiting other lawful collection methods.
Section 39 authorizes a ground water production assessment if, after notice and hearing, the board finds that ground water production by other entities within the district for commercial/industrial uses injures/reduces the district’s financial condition; the district may require reports by operators of commercial/industrial wells; nonpayment constitutes invasion of district waters and entitles the district to an injunction and damages under Section 32.
Section 40 authorizes assessments and stand-by charges for sanitary sewerage capital finance: the district must establish by board resolution the area benefited; after a hearing and notice to affected parties, the district may levy and collect assessment or stand-by charges based on available capacities or selected characteristics of benefited property (including effective length of property frontage or area within the property boundary as determined by the board); unpaid assessments constitute a lien on assessed land.

Territory changes, mergers, and dissolution

Section 41 allows district exclusion of territory by board resolution after notice to landowners in the territory proposed for exclusion and after finding that lands do not and will not benefit by reason of inclusion; the certified resolution must be filed in the same manner as formation resolution and becomes effective under applicable rules.
Section 42 authorizes the Administration, after notice and hearing, to require annexation or deannexation by requiring annexation/deannexation to be accomplished through adoption and filing of an appropriate resolution in the same manner as resolution forming a district or exclusion.
Section 43 authorizes the Administration, after hearing and determination that merger or consolidation is in the best interest of residents, to require merger or consolidation of facilities or operations of two or more districts.
Section 44 allows dissolution by board resolution filed like a formation resolution, but only if prior procedures are accomplished:
- another public entity acquires assets and assumes all obligations and liabilities;
- all bondholders are notified and consent to transfer and dissolution; and
- a court of competent jurisdiction finds transfer and dissolution are in the best interest of the public.

Tax and franchising limits for districts

Section 45 exempts districts from income taxes and from payment of national, local, and municipal taxes and fees, including franchise, filing, recordation, license or permit fees/taxes, and any fees/charges/costs in court or administrative proceedings where the district is a party, and from duties/imposts on imported machinery, equipment, and materials required for operations.
Section 46 prohibits granting any franchise to any other person or agency for domestic water service within the district or any portion thereof unless the district board consents by duly adopted resolution.

Local Water Utilities Administration charter

Section 47 names the administration law title as the “Local Water Utilities Administration Law.”
Section 48 charters a national agency called Local Water Utilities Administration, attached to NEDA, and declares Title III as the Administration’s charter.
Section 49 mandates Administration purposes to: establish minimum standards/regulations to assure acceptable construction materials/supplies, maintenance/operation/personnel/training/accounting/fiscal practices; furnish technical assistance and training; monitor and evaluate standards; effect system integration, joint investment/operations, annexation/deannexation when economically warranted; and provide a specialized lending institution with expertise in financing local water utilities.

Board of Trustees and governance

Section 50 creates a five-member Board of Trustees composed of Philippine citizens with experience requirements:
- two trustees with at least 10 years experience in banking/finance employed by the National Government;
- two trustees who are manager/engineer/accountant/attorney employed by a local water utility with at least 4 years water operations-related experience;
- one trustee who is a civil or sanitary engineer employed by the National Government;
- no more than one trustee may represent a private investor-owned utility; and
- no elected official may act as trustee.
Section 51 provides the trustees are appointed by the President of the Philippines for five-year terms, with staggered initial terms for the first five appointed: five years, four years, three years, two years, and one year.
Section 51 provides that trustees may be removed for cause only.
Section 52 requires vacancies be filled by the President in like manner, with the substitute serving only the unexpired portion of the term.
Section 53 requires that business and affairs are carried on by and through the Board of Trustees; trustees establish policy and do not engage in detailed management.
Section 54 sets trustee compensation: each trustee receives a per diem equivalent to 4% of the mayor’s monthly salary for a first class city for each day of actual attendance at board meetings, and meetings are limited to not exceed twelve in one year.
Section 55 requires trustees to adopt a code of by-laws for Administration affairs subject to NEDA approval.
Section 56 allows by-law amendments with affirmative vote of four trustees subject to NEDA approval.

Officers, employees, and civil service exemptions

Section 57 requires election of a chairman and vice-chairman from among the trustees, and selection of secretary, treasurer, auditor, and general counsel.
Section 58 requires trustees to select a general manager who is not a trustee; the general manager employs additional personnel pursuant to guidelines established and subject to review by trustees.
Section 58 requires at least three basic divisions: loan fund, technical, and regulatory, each supervised by a director responsible to the general manager.
Section 58 exempts regular professional and technical personnel from WAPCO and Civil Service rules and provides entitlement to government employee benefits (including retirement, GSIS insurance, leave, and similar matters).

Administration powers: standards, financing, and compliance

Section 59 grants general corporate powers to the Administration consistent with its charter and purposes.
Section 60 authorizes borrowing and issuing debentures as security, constituting a lien on securities/covenants/obligations of local water utilities held by the Administration as security for loans to local utilities.
Section 61 authorizes loans from a Revolving Loan Fund to qualified local water utilities under these conditions and procedures:
- borrower must hold a valid Certificate of Conformance or a Condition Certificate of Compliance and meet additional qualification requirements set by trustees (Section 61(a));
- feasibility study must be made by a prequalified consultant (Section 61(b));
- Administration may take security including authorized revenue bonds or other evidence of debt (Section 61(c));
- trustees must adopt uniform loan rules, documents, and procedures including security, payment, default, and authority for the Administration to act as receiver in court enforcement (Section 61(d));
- loan proceeds must be fully funded and set aside to assure completion of the project (Section 61(e)).
Section 62 requires the Administration to establish standards and enforce them through rules and regulations, through vigorous consultation with public works and other agencies; the standards and regulations must include:
- minimum drinking water standards with uniform testing and reporting, including bacteriological, chemical, and physical parameters (Section 62(a));
- minimum design and construction criteria for new/additional facilities and wastewater collection/treatment/disposal (Section 62(b));
- standards for optimum selection/effective utilization of equipment/materials/supplies (Section 62(c));
- standardized procedures for operation and maintenance (Section 62(d));
- training of personnel who operate/manage utilities (Section 62(e));
- organizational and institutional criteria assuring independent operation and funding (Section 62(f)); and
- a uniform accounting system with uniform chart of accounts and stipulated levels of internal reporting (Section 62(g)).
Section 63 exempts publicly-owned local utilities with a Certificate of Conformance or Conditional Certificate of Conformance from the Public Service Commission (or successor) jurisdiction; rates/charges must provide the same revenue adequacy items listed in Section 63(a)-(f).
Section 63 requires Administration review of such utility rates/charges for compliance; review is by trustees in writing; any aggrieved party may appeal in writing to the Public Service Commission (or successor) within 30 days, and the Commission must decide within 60 days; failure to decide within the period is deemed an affirmation of the Administration’s review.
Section 64 requires Administration to provide technical assistance to local water utilities, boards, management, and operating personnel to help meet standards and encourage upgrading, focusing on matters practical to finance/develop nationally but beyond individual utility capability