Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City, Metro Manila

Fifteenth Congress
First Regular Session

1135

HOUSE BILL NO.

Introduced by Honorable Roger Gaviola Mercado

EXPLANATORY NOTE

This bill seeks to amend certain provision of Republic Act No. 9136, otherwise
known as the Electric Power Industry Reform Act (EPIRA) of 2001 to make the law more
responsive to the challenges confronted in its actual implementation over the years.

‘The amendment to Section 9, on the Functions and Responsibilities of TRANSCO allows
TRANSCO to put transmission lines for missionary areas that can be connected to the grid or
those already connected to Transco’s main inter-island to spur economic development in these
areas.

The Municipality of Cabalian in Souther Leyte, for example, is a sixth class
municipality with a population of more or less ten thousand (10,000). At present, it is considered
& missionary area because its low population makes it an unviable area for electrification
However, there is a potential 60-100 MW geothermal plant that PNOC-EDC, a govemment-
owned and -controlled corporation engaged in the exploration and development of geothermal
resources, is considering as part of its new project. Once the geothermal plant is operational, we
foresee that Cabalian will enjoy the attendant economic and downstream activities brought about
by having electricity. With adequate power supply, post-market facilities, piers, and other
commercial establishments can now thrive in the area. This, in turn, can spur the municipality's
development.

However, the PNOC-EDC’s plant will just produce electricity when still needs
transmission line facilities to be connected to the Leyte grid. Since TRANSCO is mandated to
ensure and maintain the reliability, adequacy, security, stability and integrity of the nationwide
electrical grid, it must be allowed to invest in the expansion of its transmission lines to include
onary areas to be connected to the grid.

The amendment to Section 45 will exempt generating companies utilizing or producing
power from site-specific indigenous and renewable energy from the market share limitations.
This will serve as a boost to the development of indigenous and renewable energy resources,
consistent with Section 2(h) of the EPIRA, which is “to promote the utilization of indigenous and
new and renewable energy resources in power generation in order to reduce dependence on
imported energy”.

The use of indigenous and renewable energy resources has important economic
advantages. As we reduce dependence on imported fuel, the country is able to generate much-
needed foreign exchange savings and we also reduce our exposure to fluctuations in the
international prices of imported fuels.


Moreover, indigenous and renewable resources are considered environmentally-friendly
sources of energy. Their use supports the plan during the Johannesburg Earth Summit of 2002 to
accelerate the development of renewable energy resources for the reduction of greenhouse gas
emissions causing global warming. This also provides the country an opportunity to avail of the
Clean Development Mechanism (CDM) facility under the Kyoto Protocol.

Another exemption from the market share limit proposed in Section 45 is when there is @
temporary or permanent shutdown or non-operation of other generating facilities, which is
already beyond the control of the plant owner/operator. The temporary or permanent shutdown or
other generating facilities reduces the total installed capacity in the grid, with a consequential
effect of increasing the market share of an owner/operator. Since the breach of market share
limitation was not due to any action by the owner/operator, penalties such as divestment which
can be particularly severe if contracts and ability to service loan obligations by the
owner/operator are impaired, should not be imposed.

The energy sector is a capital-intensive industry. Investments for a power plant averages
about US$ | million to US$ 2 million per megawatt, and the gestation period is about three (3) to
five (5) years. With the time and money invested in such power plants, it is difficult to penalize
power plant owner/operator for factors, such as the shutdown of other plants, beyond their
control.

In view of the foregoing and in order to adapt to the dynamics in the energy sector, early

approval of this bill is earnestly requested.
CPDL 2S
YMCA

ROGER GAVIOLA MERCADO.


Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City, Metro Manila

Fifteenth Congress
First Regular Session

HOUSE BILL No,__1135

Introduced by Honorable Roger Gaviola Mercado

“AN ACT.
AMENDING SECTIONS 9 AND 45 OF REPUBLIC ACT NO. 9136, OTHERWISE KNOWN
AS THE ELECTRIC POWER INDUSTRY REFORM ACT (EPIRA) OF 2001, AND FOR
OTHER PURPOSES”

Be it enacted by the Senate and House of Representatives of the Philippines in Congress
assembled:

Section 1.
follows:

ection 9 of the Republic Act No. 9136 is hereby amended to read as

“Sec. 9. Functions and Responsibilities. - Upon the effectivity of this Act,
the TRANSCO shall have the following functions and responsibilities:

(a) Act as the system operator of the nationwide electrical transmission

and subtransmission system, to be transferred to it by NPC:

(b) Provide open, equal and non-discriminatory access to its transmission

system to all electricity users;

(c) Ensure and maintain the reliability, adequacy, security, stability and
integrity of the nationwide electrical grid in accordance with the
performance standards for the operation and maintenance of the grid,
as set forth in a Grid Code to be adopted and promulgated by the ERC
within six (6) months from the effectivity of this A

(d) Improve and expand its transmission facilities, consistent with the Grid
Code and the Transmission Development Plan (TDP) to be

promulgated pursuant to this Act, to adequately serve generation


companies, distribution utilities and suppliers requiring transmission
service and/or ancillary services through the transmission system;
Provided, That EXPANSION SHALL INCLUDE PUTTING UP
TRANSMISSION LINES FOR MISSIONARY AREAS THAT CAN
BE CONNECTED TO THE GRID OR THOSE ALREADY
CONNECTED TO TRANSCO’S MAIN INTER-ISLAND CABLES
IN ORDER TO SPUR ECONOMIC DEVELOPMENT IN THESE
AREAS; PROVIDED, FURTHER, THAT UPON COMMERCIAL
OPERATION OF THE GENERATING FACILITY IN THESE
AREAS, OWNERSHIP OF THE TRANSMISSION LINES SHALL
BE TRANSFERRED BY TRANSCO TO THE GENERATING
FACILITY AT A FAIR MARKET PRICE; PROVIDED, FINALLY,
THAT TRANSCO shall submit any plan for expansion or

improvement of its facilities for approval by the ERC;

Section 2. Section 45 of RA 9136 is also hereby amended to read as follows:

“See. 45. Cross Ownership, Market Power Abuse and Anti-Competitive
Behavior ~ No participant in the electricity industry or any other person
may engage in any anti-competitive behavior including, but not limited to,
cross-subsidization, price or market manipulation, or other unfair trade
practices detrimental to the encouragement and protection of contestable
markets.

No generation company, distribution utility or its respective subsidiary or
affiliate or stockholder or official of a generation company or distribution
utility, or other entity engaged in generating and supplying electricity
specified by ERC within the fourth civil degree of consanguinity or
affinity, shall be allowed to hold any interest, directly or indirectly, in
TRANSCO or its concessionaire. Likewise, the Transco, or its
concessionaire or any of its stockholders or officials or any of their
relatives within the fourth civil degree of consanguinity or affinity, shall
not hold any interest, whether directly or indirectly, in any generation
company or distribution utility. Except for ex officio government:
appointed representative, no person who is an officer or director of the
TRANSCO or its concessionaire shall be an officer or director of any

generation company, distribution utility or supplier.


An “affiliate” means any person which, alone or together with any other
person, directly or indirectly, through one or more intermediaries,
controls, is controlled by, or is under common control with another person.
‘As used herein, “control” shall mean the power to direct or cause the
direction of the management policies of a person by contract, agency or

otherwise.

To promote true market competition and prevent harmful monopoly and
market power abuse, the ERC shall enforce the following safeguards:

(a) No company or related group can own, operate or control more than
thirty percent (30%) of the installed generating capacity of a grid
and/or twenty five percent (25%) of the national installed generating

capacity. “Related group” includes a person’s business interests,
including its subsidiaries, affiliates, directors or officers or any of their

relatives by consanguinity or affinity, legitimate or common law,

within the fourth civil degree;

(b) Distribution utilities may enter into bilateral power supply contracts
subject to review by the ERC; Provided that such review shall only be
required for distribution utilities whose markets have not reached
household demand level. For the purpose of preventing market power
abuse between associated firms engaged in generation and distribution,
no distribution utility shall be allowed to source from bilateral power
supply contracts more than fifty percent (50%) of its total demand
from an associated firm engaged in generation but such limitation,
however, shall not prejudice contracts entered into prior to the
effectivity of this Act. An associated firm with respect to another
entity refers to any person which, alone or together with any other
person, directly or indirectly, through one or more intermediaries,
controls, is controlled by, or is under common control with such entity;

and

(c) For the first five (5) years from the establishment of the wholesale
electricity spot market, no distribution utility shall source more than
ninety percent (90%) of its total demand from the bilateral power

supply contracts.


For purpose of this section, the grid basis shall consist of three (3) separate
grids, namely, Luzon, Visayas and Mindanao. The ERC shall have the
authority to modify or amend this definition of a grid when two or more of
the three separate grids become sufficiently interconnected to constitute a

single grid or as conditions may otherwise permit.

Exceptions from these limitations shall be allowed for isolated grids that are
not connected to the high voltage transmission system, AND ALSO UNDER
THE FOLLOWING CONDITIONS:

1. FOR GENERATING COMPANIES UTILIZING OR PRODUCING
POWER FROM SITE-SPECIFIC INDIGENOUS AND RENEWABLE
ENERGY RESOURCES, SUCH AS BUT NOT LIMITED TO HYDRO,
GEOTHERMAL AND WIND, TO PROMOTE THE UTILIZATION
AND DEVELOPMENT OF INDIGENOUS AND RENEWABLE
ENERGY RESOURCES AND REDUCE DEPENDENCE ON
IMPORTED ENERGY;

IF BREACH OF MARKET SHARE LIMITS IS DUE TO TI
TEMPORARY OR PERMANENT SHUTDOWN OR NON-
OPERATION OF OTHER GENERATING FACILITIES, WHICH
REDUCES THE TOTAL INSTALLED CAPACITY IN THE GRID
WITH A CONSEQUENTIAL EFFECT OF INCREASING THE
MARKET SHARE OF AN OWNER/OPERATOR.

Except as otherwise provided for in this Section, any restriction on ownership
and/or control between or within sectors of the electricity industry may be
imposed by ERC insofar as the enforcement of the provisions of this Section

is concerned.

XXX

Section 3. Effectivity. This Act shall take effect fifteen (15) days after its

complete publication in at least one (1) newspaper of general circulation.

Approved,