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THIRTEENTH CONGRESS OF THE REPUBLIC 
OF THE PHILIPPINES 
First Regular Session 
S E N A T E  
Indroduced by Senator Edgardo J. Angara 
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EXPLANATORY NOTE 
From 1998 to 2002, the electric bills of end-users for the same usage 
tripled, increasing by 201%. Nearly half of the amount billed to end-users 
consists of the Purchase Power Adjustment, or PPA. The PPA is an automatic 
monthly adjustment to basic electric bills to recover the changes in the cost of 
power purchased from private producers. The PPA is broad enough to allow 
power generators and distributors to pass on to consumers the cost of its 
mistakes and inefficiencies as well as the burden of the onerous contracts entered 
into by the National Power Corporation and distribution utilities with 
independent power producers. 
Although end-users have been charged the PPA since the early 199O’s, it 
was onIy during the passage of Republic Act No. 9136, or the Electric Power 
Industry Reform Act (“EPIRA), in 2001 that charging the PPA to end-users was 
recognized. The EPIRA also authorizes the imposition of a ”universal charge” on 
end-users to replace the PPA. 
I t  is no coincidence therefore, that the passage of the EPIRA was 
accompanied by increases in electric bills. 
This, despite the escalating poverty in the country and the assurances by 
President Arroyo that the EPIRA would translate to lower electric bills. 
The EPIRA is evidently anti-poor and anti-people, benefiting only a few 
It results in electricity cost that is ore 
power generators and distributors. 
burdensome on consumers. 
It is in our national interest to pass an amendatory law that is pro-people, 
lessening the hardship of the majority of consumers that can no longer afford to 
pay for their electric bills. We need a drastic, real and substantial solution to 
make the cost of electricity affordable to the consumers. 
This bill seeks to lessen the hardships on consumers by preventing power 
generators and distributors from passing on the costs of their inefficiency, 
mistakes and questionable onerous contracts they have entered into to the end- 
users through the following means: 


Cost-sharing of stranded costs of NPC between the NPC and the end- 
users, the amount to be shouldered by end-users shall be limited to 
twenty three centavos (P0.23); 
Mandatory requirement by distribution utilities to refinance their 
stranded contract costs, the cost of refinancing together with the 
stranded cost recovery being capped at a maximum of twenty three 
centavos per kilowatt hour (P0.23/ kwh); 
Limitation of PPA charged by distribution utilities to twenty three 
centavos (P0.23); 
Exemption from PPA of end-users consuming less than 100 KWH a 
month; 
50% discount on PPA or universal charge for end-users consuming 100 
KWH to less than 300KWH a month; 
Retail competition and open access on distribution wires by 1 June 
2004, subject only to the conditions of establishment of the wholesale 
electricity spot market and approval of unbundled transmission and 
distribution wheeling charges; 
Stringent review by the NPC of its stranded costs; 
Performance Based Revenue forms of rate setting for transmission and 
distribution utilities by June 2003; and a review of the Return on Rate 
Base method currently adopted, including disallowance of certain 
deductions from the return on rate base; 
Prohibition of cross-ownership and bilateral contracts between 
generation companies and distribution utilities and limited cross- 
ownership among generation companies; and 
10) Arms-length review and renegotiation of all IPP contracts, the benefits 
from the renegotiation directly translating the lower PPA and stranded 
cost charges to the end-users by an international panel of experts. 
Through these measures, it is anticipated that both the PPA and the basic 
rate will be significantly reduced, directly translating to lower cost of electricity 
to end-users. 
In view of the foregoing, approval of this bill is earnestly requested. 
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THIRTEENTH CONGRESS OF THE REPUBLIC 
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OF THE PHILIPPINES 
First Regular Session 
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6.3 
s. No. 
du 
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Introduced by Senator Edgardo J. Angara 
AN ACT 
AMENDING REPUBLIC ACT NO. 9136, OTHERWISE KNOWN AS THE 
ELECTRIC POWER INDUSTRY REFORM ACT OF 2001 AND FOR OTHER 
PUROSES 
Be it enacted by the Senate and the House of Representatives of the Philippines in 
Congress assembled: 
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SECTION 1. Section 2 of Republic Act No. 9136 is hereby amended to 
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read as follows: 
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"Sec. 2. Declaration of Policy. It is hereby declared the policy of the State: 
(a) To ensure and accelerate the total electrification of the country; 
(b) 
To ensure the quality, reliability, security and affordability of the 
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supply of electric power; 
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(c) 
To ensure transparent and reasonable prices of electricity in a 
regime of free and fair competition and full public accountability to achieve 
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(d) 
To enhance the inflow of private capital and broaden the 
greater operational and economic efficiency and enhance the competitiveness of 
Philippine products in the global market; 
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ownership base of the power generation, transmission and distribution sectors; 
(e) 
To ensure fair and non-discriminatory treatment of public and 
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private sector entities in the process of restructuring the electric power industry; 


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To protect the public interest as it is affected by the rates and 
services of electric utilities and other providers of electric power; 
(g) 
To assure socially and environmentally compatible energy sources 
and infrastructure; 
(h) 
To promote the utilization of indigenous and new and renewable 
energy resources in power generation in order to reduce dependence on 
imported energy; 
(i) To provide for an orderly .and transparent privatization of the assets 
and liabilities of the National Power Corporation (NPC), THE DILIGENT 
MITIGATION, SEGREGATION AND FAIR DISTRIBUTION OF ITS 
STRANDED OBLIGATION§ AND THE ORDERLY LIQUIDATION OF ITS 
STRANDED COSTS; 
(j) 
To establish a strong and purely independent regulatory body and 
system to ensure consumer protection and enhance the competitive operation 
of the electricity market; [and] 
(k) To encourage the efficient use of energy and other modalities of 
demand side management[ .I, INCLUDING ENSURING, TO THE GREATEST 
POSSIBLE EXTENT, THAT ELECTRIC SUPPLY DOES NOT OVERLY 
EXCEED DEMAND; 
(L) TO DEVELOP CONCRETE STRATEGIES TO STRENGTHEN RURAL 
ELECTRIC COOPERATIVES.” 
SEC. 2. Section 6 of the Act is hereby amended to read as follows: 
”Sec. 6. Generation Sector. -- Generation of electric power, a business 
affected with public interest, shall be competitive and open. 
“Upon the effectivity of this Act, any new generation company shall, 
before it operates, secure from the Energy Regulatory Commission (ERC) a 
certificate of compliance pursuant to the standards set forth in this Act, 
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INCLUDING, BUT NOT LIMITED TO, COMPLIANCE WITH A MINIMUM 
LEVEL OF CAPACITY TO BE DETERMINED BY THE ERC, THE GRID CODE, 
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DISPATCH SYSTEM AND WHOLESALE SPOT MARKET RULES, as well as 
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health, safety and environmental clearances from the appropriate government 
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agencies under existing laws. 
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Any law to the contrary notwithstanding, power generation shall not be 
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considered a public utility operation. For this purpose, any person or entity 
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engaged or which shall engage in power generation and supply of electricity 
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shall not be required to secure a national franchise. 
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Upon implementation of retail competition and open access, the prices 
charged by a generation company for the supply of electricity shall not be subject 
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to regulation by the ERC except as otherwise provided in this Act. 
Pursuant to the objective of lowering electricity rates to end-users, sales of 
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generated power by generation'companies shall be value added tax zero-rated. 
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The ERC shall, in determining the existence of market power abuse or 
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anti-competitive behavior, require from generation companies the submission of 
their INDIVIDUAL PRICING FORMULA, AS WELL AS THEIR financial 
statements, POWER PURCHASE AGREEMENTS, AND ANY AGREEMENTS 
THAT AFFECT COSTS, TERMS, AND GUARANTEE§, AMONG OTHERS." 
SECTION 3. Section 31 of the Act is hereby amended to read as follows: 
"SEC. 31. Retail Competition and Open Access. - Any law to the 
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contrary notwithstanding, retail competition and open access on 
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distribution wires shall be implemented BY 1 JUNE 2003[. not later than 
three (3) years upon the effectivity of this Act], subject to the following 
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conditions: 
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a. Establishment of the wholesale electricity spot market; 
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b. Approval of unbundled transmission and distribution wheeling 
charges; 
[c. Initial implementation of the cross subsidy removal scheme; 
Ed. Privatization of at least seventy (70%) percent of the total capacity 
of generating assets of NPC in Luzon and Visayas; and 
[e. Transfer of the management and control of at least seventy percent 
(70%) of the total energy output of power plants under contract 
with NPC to the IPP Administrators.] 
Upon the initial implementation of open access, the ERC shall allow all 
electricity end-users with a monthly average peak demand of at least one 
megawatt (1MW) for the preceding twelve (12) months to be the contestable 
market. Two (2) years thereafter, the threshold level for the contestable market 
shall be reduced to seven hundred fifty kilowatts (750kW). At this level, 
aggregators shall be allowed to supply electricity to end-users whose aggregate 
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demand within a contiguous area is at least seven hundred fifty kilowatts 
(7501W). Subsequently and every year thereafter, the ERC shall evaluate the 
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performance of the market. On the basis of such evaluation, it shall gradually 
reduce threshold level until it reaches the household demand level. In the case of 
electric cooperatives, retail competition and open access shall be implemented 
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not earlier than five (5) years upon the effectivity of this Act." 
SECTION 4. Section 32 of the Act is hereby amended to read as follows: 
"Sec. 32. NPC Stranded Debt and Contract Cost Recovery. - Stranded debt of 
NPC shall refer to any unpaid financial obligations of NPC. 
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Stranded contract costs of NPC shall refer to the excess of the contracted 
cost of electricity under eligible IPP contracts of NPC over the actual selling price 
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of the contracted energy output of such contracts in the market. Such contract 
shall have been approved by the ERB as of December 31,2000. 
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TO PROTECT THE PUBLIC FROM ONEROUS AND GROSSLY 
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DISADVANTAGEOUS 
PROVISIONS 
ARISING 
FROM 
PRIVATELY 
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NEGOTIATED CONTRACTS, [tlhe national government shall be made to 
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assume a portion of the financial obligations of NPC in an amount not to exceed 
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FIVE [Two] hundred billion pesos /P500,000,000,000.00) [(P200,000,000,000.00)~ 
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UPON SHOWING OF PROOF TO THE ERC THAT THE NPC HAS 
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UNDERTAKEN 
A 
STRINGENT 
AND 
EXHAUSTIVE 
PROCESS 
OF 
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MITIGATION, SEGREGATION AND DISPOSITION. 
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The ERC shall verify the reasonable amounts and determine the manner 
and duration for the full recovery of stranded debt and stranded costs as defined 
herein; Provided, That the duration for such recovery shall not be shorter than 
fifteen (15) years not longer than twenty-five (25) years. The ERC shall, at the end 
of the first year of the implementation of stranded cost recovery and every year 
thereafter, conduct a review to determine whether there is under-recovery or 
over-recovery and adjust (true-up) the level of stranded cost recovery charge 
accordingly. Any amount to be included for stranded cost recovery shall be 
reflected as a separate item in the consumer billing statement. 
THE ERC SHALL CONDUCT A COMPREHENSIVE REVIEW OF THE 
EXTENT OF THE STRANDED COSTS OF NPC ON A SEMI-ANNUAL BASIS 
AND ENSURE THAT THE NPC HA§ UNDERTAKEN A STRINGENT AND 
EXHAUSTIVE 
PROCESS 
OF 
MITIGATION, 
SEGREGATION 
AND 
DISPOSITION.” 
SECTION 5. Section 33 of the Act is hereby amended to read as follows: 
”SEC. 33. Distribution Utilities Stranded Contract Costs Recovery. - 
Stranded contract costs of distribution utilities shall refer to the excess of 
the contracted cost of electricity under eligible contracts of such utilities 
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over the actual selling price of such contracts in the market. Such contracts 
shall have been approved by the ERB as of December 31,2000. 
"A distribution utility shall recover stranded contract costs: 
Provided, however, That such costs of the IPPs of distribution utilities are 
subject to review by ERC in order to determine fairness and 
reasonableness in relation to the average ~ rice of land-based IPP projects 
entered into by NPC at the time they wer r contracted. The ERG shall take 
into consideration all factors that affect the total cost of NPC IPP 
generation projects, including direct or indirect subsidies or incentives 
provided by the Government; PROVIDED, FURTHER, THAT THE 
AMOUNT OF STRANDED CONTRACT COSTS OF THE DISTRIBUTION 
UTILITY FROM ITS ELIGIBLE CONTRACTS SHALL NOT EXCEED 
TWENTY THREE CENTAVOS PER KILOWATT HOUR (P0.23/KWH); 
PROVIDED, FINALLY, THAT THE DISTRIBUTION UTILITY SHALL 
REFINANCE THEIR STRANDED CONTRACT COSTS ARISING FROM 
ELIGIBLE 
CONTRACT§ 
OR 
UNDERTAKE 
OTHER 
SIMILAR 
ARRANGEMENT IN ORDER TO IMMEDIATELY MITIGATE THE 
IMPACT ON END-USERS. THE DISTRIBUTION UTILITY SHALL 
SUBMIT THE REFINANCING SCHEME TO THE ERC FOR ITS 
APPROVAL PRIOR TO ITS IMPLEMENTATION. 
"A DISTRIBUTION UTILITY SHALL BE ENTITLED TO RECOVER 
FROM THE UNIVERSAL CHARGE OVER A PERIOD OF NOT LESS 
THAN FIFTEEN (15) YEAR§ BUT NOT MORE THAN TWENTY-FIVE 
(25) YEAR§, AN AMOUNT DETERMINED BY THE ERC AND IN 
ACCORDANCE WITH THE PROVISIONS OF THIS SECTION 
REPRESENTING ITS STRANDED CONTRACT COST§ FROM ELIGIBLE 
CONTRACTS AND THE COST OF REFINANCING DIRECTLY 
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ATTRIBUTABLE TO THE DEBT RAISED FOR THE PURPOSE OF 
LENGTHENING THE PERIOD FOR THE FULL RECOVERY OF ITS 
OWN STRANDED CONTRACT COSTS; PROVIDED, THAT IN NO 
CASE SHALL THE AMOUNT OF RECOVERABLE STRANDED 
CONTRACT COSTS OF A DISTRIBUTION UTILITY EXCEED TWENTY 
THREE CENTAVOS PER KILOWATT HOUR (PO.23/KWH). 
TO PROTECT THE PUBLIC FROM ONEROUS AND GROSSLY 
DISADVANTAGEOUS PROVISIONS ARISING FROM PRIVATELY 
NEGOTIATED CONTRCTS, THE ERC SHALL STRICTLY REVIEW THE 
FAIRNESS AND REASONABLENESS OF THE STRANDED COSTS OF 
THE DISTRIBUTION UTILITIES IN RELATION TO THE AVERAGE 
PRICE OF IPP PROJECTS ENTERED INTO BY IT AT THE TIME THEY 
WERE CONTRACTED, 
TAKING 
INTO CONSIDERATION 
ALL 
FACTORS THAT AFFECT THE TOTAL COST OF IPP CONTRACTS OF 
THE DISTRIBUTION UTILITY, INCLUDING BUT NOT LIMITED TO 
DIRECT AND INDIRECT SUBSIDIES OR INCENTIVES PROVIDED BY 
THE GOVERNMENT, BEFORE IT WOULD ALLOW RECOVERY OF 
STRANDED COSTS; PROVIDED, THAT THE DISTRIBUTION UTILITY 
MUST PROVE TO THE SATISFACTION OF THE ERC THAT THE 
STRANDED COST COULD NO LONGER BE FURTHER MITIGATED, 
SEGREGATED AND DISPOSED. 
"Within one (1) year from the start of open access, any distribution 
utility that seeks recovery of stranded contract costs shall file with the 
ERC notice of such intent together with an estimate of such obligations, 
including the present value thereof and such other supporting data as 
may be required by the ERC. Any distribution utility that does not file 
within the date specified shall not be eligible for such recovery. 
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"Any distribution utility which seeks to recover stranded cost shall 
have a duty to mitigate its potential stranded contract costs by making 
reasonable best efforts to: 
"a. reduce the costs of its existing contracts with IPPs to a 
level not exceeding the average buying price of other land-based 
electric power generators; and 
"b. submit to an annual earnings review by the ERC and use 
its earnings above its authorized rate of return to reduce the book 
value of contracts until the end of the stranded cost recovery 
period. 
"Other mitigating measures which are reasonably known 
and generally accepted within the electric power industry shall be 
utilized, [The ERC shall not require the distribution utility to take a 
loss to reduce stranded contract costs or divest assets, unless the 
divestiture is imposed as a penalty as provided herein.] 
"The relevant distribution utility shall submit to the ERC 
quarterly reports showing the amount of stranded costs recovered 
and the balance remaining to be recovered. 
"Within three (3) months from the submission of the 
application for stranded cost recovery by the relevant distribution 
utilities, the ERC shall verify the reasonable amounts and 
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determine the manner and duration for the full recovery of 
stranded contract costs as defined herein: Provided, That the 
duration for such recovery shall not be shorter than fifteen (15) 
years nor longer than twenty-five (25) years. PROVIDED, 
FURTHER, THAT IN NO CASE SHALL THE AMOUNT OF 
RECOVERABLE 
STRANDED CONTRACT COSTS OF 
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DISTRIBUTION UTILITY EXCEED TWENTY THREE CENTAVOS 
PER KILOWATT HOUR (P0.23/KWH). 
"Any amount to be included for stranded cost recovery shall 
be reflected as a separate item in the consumer billing statement. 
"The ERC shall, at the end of the first year of the 
implementation of 
stranded cost recovery and every year 
thereafter, conduct a review to determine whether there is under- 
recovery or over recovery and adjust (true-up) the level of stranded 
cost recovery charge accordingly. In case of an over-recovery, the 
ERC shall ensure that any excess amount shall be remitted to the 
Special Trust Fund created under Section 34 hereof. A separate 
account shall be created for these amounts which shall be held in 
trust for any future claims of distribution utilities for stranded cost 
recovery. At the end of the stranded cost recovery period, any 
remaining amount in tlus account shall be used to reduce the 
electricity rates to the end-users. PROVIDED, THAT IN NO CASE 
SHALL THE AMOUNT OF RECOVERABLE STRANDED 
CONTRACT COSTS OF A DISTRIBUTION UTILITY EXCEED 
TWENTY 
THREE 
CENTAVOS 
PER 
KILOWATT 
HOUR 
(PO. 23/ K W )  . 
SECTION 6. A new Section 33-A is hereby added, to read as follows: 
"SECTION 33-A. A DISTRIBUTION UTILITY SHALL NOT BE 
ALLOWED 
TO 
CHARGE 
END-USERS 
POWER 
PURCHASE 
ADJUSTMENT (PPA) ARISING FROM ITS OWN IPP'S IN EXCESS OF 
TWENTY THREE CENTAVOS (P0.23) PER KILOWATT HOUR; 
PROVIDED, THAT THIS SHALL BE WITHOUT PREJUDICE TO THE 
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REVIEW AND RENEGOTIATION OF IPP CONTRACTS TO FURTHER 
REDUCE THE PPA AS REQUIRED IN SECTION 68 OF THIS ACT.'' 
Section 7. Section 34 of the Act is hereby amended to read as follows: 
''Sec. 34. Universal Charge. - Within one (1) year forin the effectivity 
of this Act, a universal charge to be determined, fixed and approved by 
the ERC, shall be imposed on all electricity end-users for the following 
purposes: 
(a) Payment for the stranded debts in excess of the amount 
assumed by the National Government and stranded contract costs of NPC 
and as well as qualified stranded contract costs of distribution utilities 
resulting from the restructuring of the industry[;]: PROVIDED, THAT 
END-USERS SHALL BE CHARGED NOT MORE THAN TWENTY 
THREE CENTAVOS (P0.23) PER KwIl FOR THE STRANDED COSTS OF 
NPC. THE BALANCE OF THE STRANDED COSTS OF NPC SHALL BE 
ASSUMED BY THE NATIONAL GOVERNMENT; PROVIDED, FURTHER, 
THAT IN NO CASE SHALL THE AMOUNT OF RECOVERABLE 
STRANDED CONTRACT CO§TS OF A DISTRIBUTION UTILITY 
EXCEED TWENTY THREE CENTAVOS PER KILOWATT HOUR 
(PO .23/ KWH) . 
(b) 
Missionary electrification; 
(c) 
The equalization of the taxes and royalties applied to 
indigenous or renewable sources of energy vis-&-vis' imported energy 
fuels; 
(d) 
An environmental charge equivalent to one-fourth of one 
centavo per kilowatt-hour (P0.0025/ kWh), which shall accrue to an 
environmental fund to 'be used solely for watershed rehabilitation and 
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management. Said fund shall be managed by NPC under existing 
arrangements; and 
(e) 
A charge to account for all forms of cross-subsidies for a 
period not exceeding three (3) years. 
The universal charge shall be non-bypassable charge, which shall 
be passed on and collected from all end-users on a monthly basis by the 
distribution utilities. Collections by the distribution utilities and the 
TRANSCO in any given month shall be remitted to the PSALM Corp. on 
or before the fifteenth (15th) of the succeeding month, net of any amount 
due to the distribution utility. Any end-user or self-generating entity not 
connected to a distribution utility shall remit its corresponding universal 
charge directly to the TRANSCO. 
The PSALM Corp., as administrator of the fund, shall create a 
Special Trust Fund, which shall be disbursed only for the purposes 
specified herein in an open and transparent manner. All amounts 
collected for the universal charge shall be distributed to the respective 
beneficiaries within a reasonable period to be provided by the ERC." 
SECTION 8. A new Section 34-A is hereby added, to read as follows: 
"SEC. 34-A. EXEMPTIONS A N D  REDUCTION OF PPA. - END- 
USERS CONSUMING LESS THAN ONE HUNDRED KILOWATT 
HOURS (1OOKWH) PER MONTH ARE EXEMPTED FROM PAYMENT 
OF THE NPCS PPA. 
END-USERS CONSUMING ONE HUNDRED KILOWATT HOURS 
BUT NOT MORE THAN THREE HUNDRED KILOWATT HOURS (300/ 
KWH) PER MONTH SHALL ONLY BE REQUIRED TO PAY FOR FIFTY 
PER CENT (50%) OF THE PPA CORRESPONDING TO NPC. 
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A DETRIBUTION UTILITY MUST IMMEDIATELY EFFECT A 
PROPORTIONATE REDUCTION IN THE POWER PURCHASE 
ADJUSTMENT (PPA) AND SUBSEQUENTLY, THE COMPONENT OF 
THE UNIVERSAL CHARGE PERTAINING TO THE STRANDED 
CONTRACT 
COSTS OF 
ELIGIBLE 
CONTRACTS OF 
SUCH 
DISTRIBUTION UTILITY BY REASON OF THE EXEMPTION AND 
REDUCTION OF NPC'S PPA PURSUANT TO THE FIRST AND SECOND 
PARAGRAPH§ OF THIS SECTION." 
SECTION 9. Section 43(f) of the Act is hereby amended as follows: 
"Sec. 43. Funcfions of the ERC. - 
"(a) xxx 
(f) 
In the public interest, establish and enforce a methodology 
for setting transmission and distribution wheeling rates and retail rates for 
the captive market of a distribution utility, taking into account all relevant 
considerations, including the efficiency or inefficiency of the regulated 
entities. THE ERC SHALL ADOPT PERFORMANCE BASED REVENUE 
("PBR") FORM§ OF RATE-SETTING BY JUNE,l, 2003. PRIOR TO SUCH 
DATE, THE ERC SHALL ADOPT RATE-SETTING FORMS WHERE 
t[T]he rates must be such as to allow the recovery of just and reasonable 
costs and a reasonable return on rate base (RORB) to enable the entity to 
operate viably. The ERC may adopt alternative forms of internationally- 
accepted rate-setting methodology as it may deem appropriate. The rate- 
setting methodology so adopted and applied must ensure a reasonable 
price of electricity. The rates prescribed shall be non-discriminatory. To 
achieve this objective and to ensure the complete removal of cross 
subsidies, the cap on the recoverable rate of system losses prescribed in 
Section 10 of Republic Act No. 7832, is hereby amended and shall be 
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guidelines: 
replaced by caps which shall be determined by the ERC based on load 
density, sales mix, cost of service, delivery voltage and other technical 
considerations it may promulgate, The ERC shall determine such form or 
rate-setting methodology, which shall promote efficiency. In case the rate 
setting methodology used is RORB, it shall be subject to the following 
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i. 
For purposes of determining the rate base, the 
TRANSCO or any distribution utility SHALL NOT BE ALLOWED 
TO REVALUE ITS ELIGIBLE ASSETS FOR PURPOSES OF 
INCREASING ITS RATE BASE: PROVIDED, THAT ASSETS 
WHICH 
ARE 
NOT 
USED 
AND 
USEFUL 
FOR 
THE 
TRANSMISSION OR DISTRIBUTION OF ELECTRICITY SHALL 
NOT 
BE 
INCLUDED 
BY. THE 
TRANSCO 
OR 
ANY 
DISTRIBUTION UTILITY IN COMPUTING THE RATE BASE [may 
be allowed to revalue its eligible assets not more than once every 
three (3) years by an independent appraisal company; Provided, 
hozoever, That ERC may give an exemption in case of unusual 
devaluation: Provided, firther, That the ERC shall exert efforts to 
minimize price shocks in order to protect the consumers]; 
ii. 
Interest expenses, INCOME TAX, FRANCHISE TAX, 
WORKING CAPITAL, AND SYSTEMS LOSSES IN EXCESS OF 
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FOUR AND A HALF PER CENT (4%%) OF TOTAL ENERGY 
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PURCHASED are fiat allowable deductions from permissible 
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return on rate base; 
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iii. 
In determining eligible cost of services that will be 
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passed on to the end-users, the ERC shall establish minimum 
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efficiency performance standards for the TRANSCO and 
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distribution utilities including systems losses, interruption 
frequency rates, and collection efficiency; 
iv. 
Further, in determining rate base, the TRANSCO or 
any distribution utility shall not be allowed to include management 
inefficiencies like cost of project delays not excused by force majeure, 
penalties and related interest during construction applicable to 
these unexcused delays; and 
v. 
Any significant operating costs or project investments 
of the TRANSCO and distribution utilities which shall become part 
of the RETURN ON rate base AND SIGNIFICANT OPERATING 
COSTS THAT ARE PASSED ON TO THE CONSUMERS shall be 
subject to verification by the ERC to ensure that the contracting and 
procurement of the equipment, assets and services have been 
subjected to [transparent and accepted industry procurement and 
purchasing practices] PROCUREMENT PROCEDURES NO LESS 
STRINGENT AND TRANSPARENT THAN GOVERNMENT 
PROCUREMENT GUIDELINES, AND SUBJECT TO OPEN 
COMPETITIVE PUBLIC BIDDING IN ORDER to protect the public 
interest.” 
SECTION 10. - Section 45 of the Act is hereby amended to read as 
follows: 
“Sec. 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. 
17 


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NO DISTRIBUTION UTILITY, ITS RESPECTIVE SUBSIDIARY OR 
AFFILIATE OR STOCKHOLDER OR OFFICIAL OF A DISTRIBUTION 
UTILITY SHALL BE ALLOWED TO HOLD ANY INTEREST, DIRECTLY 
OR INDIRECTLY, IN ANY GENERATION COMPANY: PROVIDED, 
THAT THE DISTRIBUTION UTILITY HOLDING AN INTEREST IN ANY 
GENERATION COMPANY AT THE TIME OF THE PASSAGE OF THIS 
ACT SHALL BE REQUIRED TO DIVEST THE SAME WITHIN ONE (1) 
YEAR FROM THE EFFECTIVITY OF THIS ACT. 
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 TRANSCQ, 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 oficio government- 
appointed representatives, 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. A GENERATION 
COMPANY MAY BE PERMITTED TO HOLD INTEREST, DIRECTLY OR 
INDIRECTLY, IN ANOTHER GENERATION COMPANY: PROVIDED, 
THAT THE EXTENT OF SUCH INTEREST §HALL BE LESS THAN THE 
AMOUNT OF SHARES NEEDED TO VOTE ONE MEMBER OF THE 
BOARD OF DIRECTORS. 
18 


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An "affiliate" means any person which, alone or togethe with an 
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. 
x 
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 not 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] A distribution utility shall NOT 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 


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respect to another entity refers to any person which, alone or together 
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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 90% of its total demand from bilateral power supply 
contracts: PROVIDED, THAT NO BILATERAL POWER SUPPLY 
CONTRACT SHALL BE ENTERED INTO EXCEPT PURSUANT TO 
AN 
OPEN, COMPETITIVE AND TRANSPARENT BIDDING 
11 
SUPERVISED BY THE ERC: PROVIDED FURTHER, THAT AFTER 
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THE FIRST FIVE (5) YEARS FROM THE ESTABLISHMENT OF THE 
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WHOLESALE ELECTRICITY SPOT MARKET, THE ERC SHALL 
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ISSUE GUIDELINES GOVERNING BILATERAL POWER SUPPLY 
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CONTRACTS TO ENSURE INCREASED USAGE OF WHOLESALE 
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ELECTRICITY SPOT MARKET. 
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otherwise permit. 
For purposes 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 inore of the thee separate grids become sufficiently 
interconnected to constitute a single grid or as conditions may 
23 
Exceptions from these limitations shall be allowed for isolated 
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grids that are not connected to the high voltage transmission system. 
Except as otherwise provided for in this Section, any restriction on 
26 
ownership and/ or control between or within sectors of the electricity 
20 


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industry may be imposed by ERC only insofar as the enforcement of 
the provisions of this Section is concerned. 
The ERC shall, within one (1) year from the effectivity of this 
Act., promulgate rules and regulations to ensure and promote 
competition, encourage market development and customer choice and 
discourage/ penalize abuse of market power, cartelization and any 
anti-competitive or discriminatory behavior, in order to further the 
intent of this Act and protect the public interest. Such rules and 
regulations shall define the following: 
(a) 
the relevant markets for purposes of establishing 
abuse or misuse of monopoly or market position; 
, 
(b) 
areas of isolated grids; and 
(c) 
the periodic reportorial requirements of electric 
power industry participants as may be necessary to enforce the 
provisions of this Section. 
The ERC shall, motu proprio, monitor and penalize any market 
power abuse or anti-competitive or discriminatory act or behavior by any 
participant in the electric power industry. Upon finding that a market 
participant has engaged in such act or behavior, the ERC shall stop and 
redress the same. Such remedies shall, without limitation, include the 
imposition of price controls, issuance of injunctions, requirement of 
divestment or disgorgement of excess profits and imposition of fines and 
penalties pursuant to this Act. 
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The ERC shall, within one (1) year from the effectivity of this Act, 
promulgate rules and regulations providing for a complaint procedure 
3 
that, without limitation, provides the accused party with notice and an 
4 
opportunity to be heard." 
5 
SECTION 11. Section 68 of the Act is hereby amended to read as follows: 
6 
"Section 68. Review of IPP Contracfs - An inter-agency committee chaired 
7 
by the Secretary of Finance AND CO-CHAIRED BY THE SECRETARY OF 
8 
ENERGY, with [the Secretary of the Department of Justice and] the Director 
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General of the National Economic and Development Authority AND FOUR (4) 
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INTERNATIONAL ENERGY EXPERTS TO BE APPOINTED BY THE 
11 
PRESIDENT as members thereof is hereby created upon the effectivity of this 
12 
Act. The Committee shall immediately undertake a thorough ARMS-LENGTH 
13 
review of all IPP contracts ENTERED INTO BY NPC AND ANY DISTRIBUTION 
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UTILITY. In cases where such contracts are found to have provisions which are 
grossly disadvantageous, or onerous to the Government OR THE END-USERS, 
the Committee shall RENEGOTIATE THE CONTRACTS WITH THE IPPS, IN 
ADDITION TO CAUSING [cause] the appropriate government agency to file an 
action under the arbitration clauses provided in said contracts or INITIATING 
[initiate J any appropriate action' under Philippine laws. The PSALM Corporation 
shall diligently seek to reduce stranded costs, if any; PROVIDED, THAT ANY 
REDUCTION IN CONTRACT COST AS A RESULT OF ANY REVIEW OR 
RENEGOTIATION BY THE COMMITTEE SHALL TRANSLATE DIRECTLY 
INTO LOWER UNIVERSAL CHARGES FOR THE END-USER." 
SECTION 12. Separability Clause. --- I f  any provision of this Act is held 
to be unconstitutional or invalid, the same shall not affect the remainder thereof. 
22 


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SECTION 13. Repealing Clause. --- All laws, presidential decrees, 
2 
executive orders, rules and regulations, and part thereof, which are inconsistent 
3 
with the provisions of this Act, are hereby repealed or modified accordingly. 
4 
SECTION 14. E'ectivity. 
--- This Act shall take effect fifteen (15) days 
5 after publication in the Official Gazette or two (2) newspapers of general 
6 
circulation. 
7 
Approved, 
23