Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City, Philippines

FIFTEENTH CONGRESS
First Regular Session

2477

HOUSE BILL NO.

INTRODUCED BY: HON. MARCELINO “MARCY” R. TEODORO

EXPLANATORY NOTE

The bill hopes to promote the role of Natural Gas as an environment — friendly
and economically efficient source of energy by creating favorable conditions for
establishing a Downstream Natural Gas Industry that will accelerate the expansion of
natural gas service for the benefits of all segments of the nation's population and all
sectors of its economy. It further seeks to ensure the safety, quality, reliability, security
and affordability of the transmission, distribution and supply of Natural Gas.

This is in response to the incontrovertible facts that human activities have a
significant contribution to global warming, world governments are now taking steps to
reduce carbon emissions. Scientific studies on how to mitigate global warming and
research on the viability of alternative sources of energy are encouraged and funded:
the use of clean and renewable energy sources are promoted, and compliance is
rewarded by incentives. On the other hand, carbon taxes are levied to reduce industries’
dependence for carbon and therefore, greenhouse emissions. For their part, private
companies are complying with said measures, and have implemented steps on energy
conservation

It is the State's responsibility to judiciously manage its energy resources for the
benefit of the present and future generations. As such, the country's economic growth
should not be detrimental to the environment.

In the light of the foregoing, passage of this bill is earnestly sought

MARCELINO “MARCY” R. TEODORO

Representative, 1* District
City of Marikina


Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City, Philippines

FIFTEENTH CONGRESS
First Regular Session

HOUSE BILL No.__ 2477

INTRODUCED BY: HON. MARCELINO “MARCY” R. TEODORO

AN ACT ORDAINING THE DEVELOPMENT OF THE DOWNSTREAM
NATURAL GAS INDUSTRY AND CONSOLIDATING FOR THAT PURPOSE
ALL LAWS RELATING TO THE TRANSMISSION, DISTRIBUTION AND
SUPPLY OF NATURAL GAS AND FOR OTHER PURPOSES

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

CHAPTER!
TITLE AND DECLARATION.ON POLICY

SECTION.1. Short Title. — This Act shall be known as the “Downstream Natural
Gas Industry Act’. it shall hereinafter be referred to as the Act.

SEC. 2 Declaration of Policy . - It is hereby declared the policy of the State:

(a) To promote the role of Natural Gas as an environment-friendly and
economically efficient source of energy by creating favorable conditions for
establishing a Downstream Natural Gas Industry that will accelerate the
expansion of Natural Gas service for the benefits of all segments of the nation’s
population and all sectors of its economy;

(b) To ensure the safety, quality, reliability, security and affordability of the
Transmission, Distribution and supply of Natural Gas;

SEC. 3 Scope — This Act provide a framework for the development of a
downstream Natural Gas Industry and its transition from an emerging to a mature
industry status and competitive Natural Gas market , and define the
responsibilities of various govemment agencies and private entities in
furtherance of this national goal.

All activities of the DOE and the ERC relevant to the development and regulation
of the Downstream Natural Gas Industry shall be in accordance with this Act.

SEC. 4 Definition of Terms. — As used in this Act, the following terms shall have
the following meanings;

(a) “Captive Market “ refers to Natural Gas End-users who do not have the
choice of a transporter or distributor, or Supplier of Natural Gas or other
economically competitive energy substitute, as may be determined by the ERC in
accordance with this Act;

(b) "Congress" refers to the Congress of the Philippines:


(c) "Contestable Market’ is a market is not a Captive Market;

(d) ‘Delivery” refers to the Transportation Transmission or Distribution of Natural
Gas and the Supply of Natural Gas, at wholesale or retails;

(e) “Department of Energy” or “DOE” refers to the government agency created
pursuant to Republic Act No. 7638, as amended;

(f) “Department of Environment and Natural Resources” or “DENR" refers to the
government agency created pursuant to Executive Orders Nos. 192 and 292 , as
amended ;

(g) “Distribution * refers to the conveyance of Natural Gas by a Gas Distribution
Utility through its Gas Distribution System;

(h) “Downstream Natural Gas Industry” refers to the Transmission , Distribution
and supply of Natural Gas and relatives activities , such as but not limited to
processing , storing, regassification, interconnection, measurement and /or
metering;

(i) "End-user" refers to any person that receives delivery of Natural Gas for its
own use;

()) Energy Regulatory ‘Commission * or “ERC” refers to the regulatory agency
created pursuant to Republic Act No. 9136 or the Electric Power Industry
Reforms Act of 2001 whose expanded functions are provided in this Act;

(k) “Franchise Area” refers to the right, privilege and authority issued by
Congress authorizing a person to engage in the Transmission and/or Distribution
of Natural Gas within a specific geographical areas;

(\) “Franchise Area” refers to a geographical area assigned or granted under a
Franchise;

(m) "Gas Distribution Code” refers to the code to be formulated by the DOE as
required by the Act that sets the technical performance standards for operating
Gas Distribution Utilities and the minimum financial standards for Gas
Distribution Utilities;

(n) ‘Gas Distribution System" refers to the system of pipelines, storage and
related facilities extending from the delivery points where the Gas Distribution
‘System receives the Natural Gas to the point of connection to the premises of the
End -User;

(0) ‘Gas Distribution Utility” refers to any Person that has a Franchise granted by
Congress to operate a Gas Distribution System:

(p) “Gas Permit’ refers to an authorization issued by the DOE for the
construction, operation, expansion and modification of Gas Transmission
Systems and Gas Distribution System and for the Supply of Natural Gas
Transmission System and Gas Distribution Systems and for the Supply of
Natural Gas.

(q)’Gas Supply Contract’ refers to a contract for the Supply of Natural Gas
Between a Supplier and a purchases:


(r) "Gas Transmission Code” refers to the code to be develop by the DOE as
required by the Act sets the technical performance standards for operating Gas
transmission system and the minimum financial standards for Gas Transmission
utilities;

(s) "Gas Transmission System” refer generally to the system of pipelines, storage
and related facilities that are used to transport Natural Gas from the
interconnection with Gathering Facilities, LNG regasssification facilities or other
Gas Transmission System to the interconnection with Gas Distribution System ,
other Gas Transmission Systems, or end-users;

(t) “Gas transmission Utility’ refers to any Person that has a Franchise to operate
a Gas transmission System and does not include those who operate own-use
pipelines, storage and related facilities operated independently of the pipelines or
those intending to operate a Gas Transmission System;

(u) “Gathering Facilities" refers to Natural Gas pipelines and related facilities
used to gather gas in the field and bring it to a location for processing or for
delivery at an interconnection with the gas Transmission System; the terms
"Gather" and “Gathering” shall be construed accordingly;

(v) “Joule” refers to the unit of energy or work done when the point of application
of a force of one Newton is displace at distance of one meter in the direction of
the force. It is also equal to one watt-second;

(w) "LNG" refers to Liquefied Natural Gas’;

(x) ‘Natural Gas’ refers to hydrocarbons, primarily methane, which at
atmospheric temperature and pressure, are in a gaseous phase. For of this Act
the term “Natural Gas” shall be inclusive of LNG;

(y) “Person” refers to a natural or juridical person, as the case may be including
the national and local government of the Republic of the Philippines , its agencies
and instrumentalities, and government-owned controlled corporations;

(2) “Petroleum Operations” as defined in PD 87, refers to searching for and
obtaining petroleum within the Philippines through drilling and pressure or suction
or the like , and all other operations incidental thereof. It included the
transportation, storage, handling and sale (whether for export or for domestic
consumption) or petroleum so obtained but does not include any: (1)
transportation of petroleum outside the Philippines; (2) processing or refining at a
refinery; or (3) any transaction in the products so refined;

(aa) ‘Philippine Energy Plan" or “PEP* refers to the overall energy program
formulated and update yearly by the DOE and submitted to Congress pursuant to
Republic Act No. 7638, as amended;

(bb) * Service Contract” refers to the award granted by the Philippine government
to a qualified Person to engage in the exploration , development and utilization of
natural resources through joint venture, co-production, production-sharing or
other similar arrangement with the State pursuant to Article XII, Section 2, of the
Constitution, including , Service Contracts under Presidential Decree No. 87 , as
amended;

(cc) “Supplier" refers to any Person authorized by the DOE to engage in the
‘Supply of Natural Gas;


(dd) ‘ Supply” means refers to the domestic trading and /or sale of natural Gas for
wholesale or retails;

(ee) “Third party Access” refers to the system of allowing any qualified Person
access to the Gas Transmission Systems and Gas Distribution Systems under
the conditions prescribed in Chapter II Sec. 10 hereof;

(ff) "Transmission" refers to the transportation of Natural Gas through a Gas
Transmission System:

(gg) “Unbundled Service” refers to the pricing of the energy value of Natural Gas
separately from the rated charged for natural gas transmission or Distribution;
and

(hh) "Vehiclar Natural Gas" means Natural Gas that is used a fuel in a self-
propelled vehicle,

CHAPTER II
ORGANIZATION AND OPERATIONS OF THE DOWNSTREAM NATURAL
GAS INDUSTRY

SEC. 5 Organization.- For purpose of this Act, the Downstream Natural Gas
Industry shall be divided into three (3) sectors, namely : transmission, Distribution
and Supply of Natural Gas.

SEC. 6 Regulation of Transmission, Distribution and Supply Sectors. ~ The
Transmission, Distribution and Supply of Natural Gas are business affected with
public interest and the regulation of these businesses as provided for in this Act
is hereby deemed necessary in the public interest .

SEC. 7 Franchise Requirement.

a) Transmission and distribution of Natural Gas declared public utilities. The
Transmission and Distribution of Natural Gas as provided for in this Act are
hereby declared to be public utility operations, requiring a Franchise or similar
legislative authorization;

{b) Congressional Franchise and similar legislative authorization. Any person
that seeks to operate for commercial purpose a Gas Transmission System or
Gas Distribution System shall first be required to hold or obtain a Franchise, any
law to the contrary notwithstanding. The Franchise requirement shall apply with
respect to all Gas Transmission System and Gas Distribution Systems,
regardless of the size or pressure of the pipelines. The foregoing,
notwithstanding, this Franchise requirement does not apply to operators of
facilities for the Transmission and Distribution of Natural Gas for Own-use and
related facilities that are operated independently from the pipeline;

(c) Prior regulatory approvals. The grantee of such franchise shall also be
required to secure from the DOE a Gas Permit as provide herein, and to secure
from the appropriate government agencies all other regulatory approvals,
licenses, permits and authorization applicable to such grantee under existing
laws. The DOE shall not unreasonably withhold or delay the grant of any Gas
Permit, and any not Gas Permit , and may not reopen any legislative
determination in the review and grant of any Franchise.


SEC. 8 Philippine Ownership Requirement. — As required under Article XII,
Section II, of the Constitution of the Republic of the Philippines, no Franchise,
certificate, or any other form of authorization of a pubic utility shall be granted
except to citizens of the Philippines at east sixty per centum (60%) of whose
capital is owned by such citizens.

SEC. 9 GAS TRANSMISSION SYSTEM OF SERVICE CONTRACT HOLDERS.-
Any Person who is a holder of a Service Contract that authorizes the construction
and operation of facilities for the Transmission or Distribution of Natural Gas shall
not be required to obtain a Franchise or other legislative authorizations under this
Act only to the extent such facilities are : (a) located in the production area and
upstream of gas processing or refining and are not used to serve End-users: or
(b) used exclusively to provide service to existing customers or such Person
under a Gas Supply Contract shall not be affected by the enactment of this Act.
in all other cases, Service Contract holders shall be subject to the Franchise and
other regulatory approval requirements set forth in this Act.

SEC. 10 Third Party Access. ~ Gas Transmission systems and Gas Distribution
system excluding those constructed and operated for own use shall be available
for non-discriminatory access by third party users which may include parties to a
Service Contract, Suppliers and End-users, with due regard to the economic
viability of the operation of such facilities. Such operators shall negotiate in good
faith with third-party users the provision and terms of access in accordance with
guidelines to be promulgated by the DOE.

a) Available Capacity. The Third Party Access obligations shall apply only to the
available capacity of the Gas Transmission System and Gas Distribution System
as determined by subtracting the volume of capacity that is:

(i) used by the owner or operator to serve his own customers; and/or

(li) Allocated by the owner or operator to third parties under transportation
contracts

From the design capacity of the Gas Transmission Systems and Gas Distribution
Systems.

Nondiscriminatory third-party access shall be available to user by contract with
the gas Transmission or Gas Distribution Utility . if the Gas transmission or Gas
Distribution Utility with available capacity refuses service to user or offers
discriminatory service, the affected party may request the DOE's intervention .
The Gas Transmission or Distributions Utility shall be required to file proof that
capacity was not available when service was denied.

b) Deferment of third Party Access Obligation. As condition imposed by a Permit
. the DOE may determine that implementation of Third Party Access to Gas
Transmission System and Gas Distribution System may be deferred where:

(i) It can be demonstrated that such deferment is necessary to enable the
efficient planning of the infrastructure and aggregation of the initial demand
necessary to justify investments in the gas Transmission Systems and Gas
Distribution System; or

(ii) It is in the interest of the End-users served by the Gas Transmission System
and Gas Distribution System to ensure stability of supply.


In either case, the DOE shall not defer implementation of Third Party Access for
a period longer than three (3) years after completion of construction in the cases
of gas transmission System and Five (5) years after completion or construction in
the case Distribution System. Provided,however, that the deferment period can
be extended on reasonable grounds.

(c) Approved Access Conditions for gas Transmission utilities and Gas
distribution Utilities . Prior to conducting negotiations with third parties, a gas
Transmission Utility and A Gas Distribution Utility shall request the DOE to
approve its access conditions. The DOE shall approve conditions after it has
determined that they are consistent with the guidelines which it shall promulgate
pursuant to this Act.

SEC. 11. Environmental Protection. — Gas Transmission Utilities, Gas
Distribution Utilities and Suppliers shall comply with all environmental laws, rules
regulations and standards promulgated by the DENR and other appropriate
governmental agencies.

CHAPTER Ill
POWERS AND FUNCTIONS OF THE DOE

SEC. 12 POWERS AND FUNCTIONS OF THE DOE. In addition to its existing
powers and functions, the DOE shall have the overall responsibility of
supervising and monitoring the development of the Natural Gas Industry and
regulation of the constructi§n and operation of Natural Gas pipelines and related
facilities for the Transmissfon, Distribution and Supply of Natural Gas. Toward
this end, the DOE shail have the following powers and functions:

(b) Establish standards setting forth the characteristics for classifying pipelines
and related facilities either as Gas Transmission Systems, Gas Distribution
System, or Gathering Facilities. These standards may include both the physical
characteristics related to the diameter, size and pressure of pipelines facilities ,
and the functional characteristics of such facilities;

(c) Prepare and periodically update a five-year Natural Gas Development Plan
and integrate the same into the PEP. The DOE shall consider and integrate the
individual or joint development plans and submitted to it by the Downstream
Natural Gas industry participants pursuant to this Act. Appropriate mechanisms
shall be provided to protect the confidentiality of any information that is
commercially sensitive. The DOE shall publish an initial draft of the plan and
undertake public consultations thereon prior to its adoption;

(d) Before the end of April of each year, submit to the Office of the President.
And Congress an annual reports;

(e) Ensure the safety, reliability, quality and security of supply of Natural Gas.
Consistent with the development of the Downstream Natural Gas Industry, the
DOE shall, among others:

(i) Encourage private sector investments in delivery infrastructure and promote
the development of domestic markets fro Natural Gas;

(ii) In consultation with the Downstream Natural Gas Industry participants and
other government agencies , promote a system of incentives to encourage
industry participants , including new producers and End-users to provide
adequate and reliable supply of Natural Gas; and


(ii) Undertake, in coordination with other governmental agencies , as
appropriate, an information campaign to educate the public on the benefits of
developing the Natural Gas Industry and the potential for utilizing Natural Gas as
a source of Energy

(f) Within one (1) year from the Effectivity of this Act, promulgate rules and
regulations to promote competition, encourage market development and
customer choice and prohibit! penalize 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:

(i) define the relevant product and geographic markets for purposes of
establishing anti-competitive conduct;

(ii) Provide criteria to determine the relevant market structure; and

(iii) establish the periodic reportorial requirements of Natural gas Industry
participants as may be necessary to enforce the provisions of this Section.

(g) Within six (6) months from the Effectivity of this Act, the DOE shall,
preparatory to the holding of pubic consultations with Natural Gas industry
participants, issue draft gas Transmission and. Distribution Codes which shall
contain, among others, the following:

(i) Technical performance standards for Gas Transmission and Distribution
Utilities; provide, that in the establishment of the performance standards, the
nature and function of the entities shall be considered; and

(li) Minimum financial capability standards for Gas Transmission and Distribution
Utilities: Provided, that such standards are set to ensure that the Natural Gas
Industry participants meet the minimum financial standards to protect the public
interest.

In consultation with Natural Gas industry participants, the DOE shall issue final
Gas Transmission and Distribution Codes within twelve (12) months from the
Effectivity of this Act

(h) By order, revoke, after due notice and hearing , the Gas Permit of any Person
that finals to comply with the rules and regulations promulgated pursuant to this
Act, the Gas Transmission code , the Gas Distribution Code, or any requirement
of this Act. The DOE shall allow such Person sufficient time to remedy the
violation for an orderly disgorgement, when applicable, but in no case shall such
remediation period exceed twelve (12) months from the date of issuance of the
order.

(i) Encourage private enterprises in the Downstream Natural Gas Industry to
broaden the base of their ownership and thereby encourage and thereby
encourage the widest public ownership thereof;

{j) Formulate, in consultation with the Downstream Natural Gas Industry
Participants, rules and regulations as may be necessary to implement the
objectives of this Act;

(k) Exercise such other power as may be necessary or incidental to attain the
objectives of this Act; and


() Exercise original and exclusive jurisdiction over all cases dealing with
issuance of permits, non-price regulatory measures, fees, fines and penalties
imposed b y the DOE in the exercise of the above-mentioned powers.

CHAPTER IV
POWERS AND FUNCTIONS OF THE ERC

Sec. 13 Powers and Functions of the ERC. — In addition to its existing powers
and functions, ERC shall assume sole regulatory responsibility for establishing
the rates and related terms and conditions of service for the Transmission,
Distribution , and Supply of Natural Gas to the extent that each such activity is
regulated pursuant to the requirement set forth in this Act. Toward this end, the
ERC shall have the following powers and functions;

(a) In the public interest, establish and enforce a methodology for setting
transmission, distribution, and Supply rates taking into account all relevant
considerations, including the efficiency or inefficiency of the regulated entities.
The rates must be such as to allow the recovery of the just and reasonable costs
and a reasonable return on rate base (RORB) to enable the entily to operate
viably. The ERC may adopt alternative forms or internationally-accepted rate-
setting methodology as it may deem appropriate. The rate-setting methodology
so adopted and applied must ensure a reasonable price or tariff, The rates
prescribed shall be non-discriminatory, The ERC shall determine such from of
rat-setting methodology which shall promote efficiency.

(b) Determine whether take-or-pay charges, minimum bill payments or similar
fixed obligation contained in Gas Sales and Purchase Contracts or pipelines
Transmission contracts entered into by Gas Transmission and Distribution
Utilities and electric power industry participants can be recovered from their
tariffs tot their own customers:

(c) Apply administrative procedures that will ensure the constitutional right to due
process.

CHAPTER V
NATURAL GAS TRANSMISSION SECTOR

Sec. 14 Gas Permit Requirement. - Any Person that holds a Franchise granted
by Congress authorizing it serve as A Gas transmission Utility shall, before it
operates, maintains or constructs Gas Transmission System, Secure from the
DOE a Gas Permit issued pursuant to the standard set forth in this Act and the
rules and regulations promulgated by the DOE. The DOE shall issue a public
notice of all Gas Permit applications and afford interested parties reasonable
opportunity to comment upon such applications. The DOE shall issue a Gas
Permit upon its determination that the construction, control, installation, operation
and maintenance of the Gas transmission System would be consistent with the
policy declaration contained in this Act. Provided , however , that if a Gas Permit
is sought for new service that would be provide within the franchise area of gas
Transmission Utility, the DOE shall consider. The economic effect of granting
such a Gas Permit that Gas transmission Utility and its end-users.

SEC. 15 Terms and Conditions of Permits.- In issuing as Gas Permit, the
DOE shall have the power such reasonable terms and conditions as the public
interest may require.


‘Among such conditions shall be the requirements that the Permit holder complies
in full with the Gas Transmission Code promulgated by the DOE pursuant to
Section 17 hereof.

Gas Transmission Utilities shall not be obligated to undertake, nor may DOE
require, the expansion of an existing Gas Transmission System to serve
additional customers or the sizing of a Gas Transmission system for the purpose
of increasing capacity to serve load in excess of the maximum design capacity of
the pipelines proposes by the Gas transmission Utility;

SEC. 16. Functions/Obligations of Gas Transmission Utilities. - A Gas
Transmission Utility shall have the obligation to provide transmission service and
connections to its Gas Transmission System for any End-user subject to
economic viability. Any Gas Transmission Utility engaged therein shall provide
nondiscriminatory access to its Gas Transmission System to any Supplier and
eligible End-user under Section 10, Chapter Il of this Act.

Sec. 17 Gas Transmission Code Compliance. — All Gas transmission Utilities
shall be required to ensure and maintain the safety, reliability, adequacy ,
security, stability and integrity of their Gas Transmission Systems in accordance
with the performance standards set forth in Gas Transmission Code to be
promulgated by the DOE. Each Gas Transmission Utility shall submit to the DOE.
a Statement of its compliance with the technical specifications prescribed in the
Gas Transmission Code and the performance standards prescribed in the rules
and regulations implementing this Act. A Gas transmission utility that does not
comply with a prescribed technical specification or performance standard shall
include within such statement of compliance a plan for achieving compliance with
said technical specifications and performance standards within three (3) years or
such lesser period as may be necessary to prevent safety, reliability , or
environmental harm. The DOE shall, within sixty (60) days upon receipt of such
plan, evaluate the same and nifty the Gas Transmission Utility concerned
whether its plan is accepted. Failure to submit a feasible and credible plan and/or
failure to implement the same shall serve as grounds for the imposition of
appropriate sanctions, fines or penalties.

SEC. 18 Abandonment of Gas Transmission Systems. - No holder of a
Permit for the construction, installation, operation or maintenance of a Gas
transmission System shall abandon or withdraw from service any portion of such
Gas Transmission System without obtaining prior authorization form the DOE,
which determination shall be made within one hundred eighty (180) days from
the filling of the abandonment. Such abandonment shall be done in accordance
with existing laws.

Sec. 19 Fees. - The DOE shall have the authority to prescribe and collect fees
and charges relating to the issuance and Jor review of permits, and other service
related to the supervision and regulation of Gas Transmission Systems.

CHAPTER VI
NATURAL GAS DISTRIBUTION SECTOR

SEC. 20 Gas Permit Requirement. - Any Person that holds a Franchise
granted by Congress authorizing it to serve as a Gas Distribution Utility shall,
before it operates, maintains or constructs Distribution Systems, secure from the
DOE a Gas Permit issued pursuant set forth in this Act and the rules and
regulations promulgated by the DOE. The DOE shall issue a public notice of all
Gas Permit applications and afford interested parties reasonable opportunity to
comment such applications. The DOE shall issue a Gas Permit upon its


determination that the construction, control , installation, operation and
maintenance of the Gas Distribution system would be consistent with the policy.
declaration contained in this Act. Provided, however, that id Gas Permit is sought
for new service that would be provided within the Franchise area of Gas
Distribution Utility, the DOE shall consider the economic effect of granting such
as Gas permit upon that Gas Distribution Utility and its end-users.

SEC. 21 Terms and Conditions of Permits.- in issuing a Permit , the DOE shall
have the power to impose such reasonable terms and conditions as the public
interest may require . Among such conditions shall be the requirement that
Permit holder complies in full with the Gas Distribution Code Promulgated by the
DOE pursuant to Section 23 hereof.

SEC. 22 Functions of Gas Distribution Utilities.-

(a) A Gas Distribution Utility shall have the obligation to provide Distribution
service and connections to its Gas Distribution System for any End-user within
the areas covered by its Gas Permit consistent with the Gas Distribution Code.
Any Gas Distribution Utility engaged therein shall provide nondiscriminatory
access to its Gas Distribution System to eligible end-users under Section 10,
Chapter ii of this Act;

(b) Any gas distribution utility shall be entitled to impose and collect Distribution
charges connection fees from such End-users as approved by the ERC;

() A Gas Distribution Utility shall submit to the DOE annually its plan for
maintaining and developing its Gas Distribution System in Compliance with the
obligations imposed by this Act;

(d) A Gas Distribution Utility shall provide universal service within the area
covered by its Gas Permit except as provided herein. A Gas Distribution Utility
shall be obliged to develop and maintain an efficient system for the Supply of
Natural gas at the reasonable request of End-users within its Franchise Area
including:

(i) The installation of pipes where the connection to the End-user is within twenty
(20) meters of the Gas Distribution System; or

(ii) Increasing the capacity of existing Gas distribution Systems; provided,
however, that no new service shall be required if such service would not be
economically viable. A determination by a Gas Distribution Utility that it cannot
viably serve a portion of its franchise Area shall be subject to review by the DOE
upon filling of a compliant by the requesting End-user.

The obligation of the Gas Distribution Utility to provide universal access involves
both an obligation to connect end-users within twenty-five (25) meters from the
main pipeline and an obligation to supply such End-users, to the extent that the
Gas distribution utility is the sole gas supplier. Upon implementation of Third
party Access, the utility shall be relieved of his obligation to supply End-users fro
retail access as defined in the guidelines to be promulgated by the DOE, but not
his obligation to provide connection to his distribution system to such end-users.
Whether or not the Gas Distribution Utility is the sole gas supplier in the area,
prices charged by the utility for the supply of gas will be negotiated fro
contestable Market and regulated by the ERC for the Captive market.


(e)’A Gas distribution Utility shall submit annually to the DOE its plan for
maintaining and developing its Gas Distribution System in compliance with the
obligations prescribe in this Act.

Sec. 23 Gas Distribution Code Compliance. All Gas Distribution utilities shall
be required to ensure and maintain the safety, reliability, adequacy, security,
stability and integrity of their Gas Distribution Systems in accordance with the
performance standards set forth in Gas Distribution Code to be promulgated by
the DOE. Each Gas Distribution Utility shall submit to the DOE a Statement of it
compliance with the technical specifications prescribed in the Gas Distribution
Code and the performance standards prescribe in the rules and regulations
implementing this Act. A Gas Distribution Utility that does not comply with a
prescribed technical specification or performance standard shall include within
such statement of compliance a plan for achieving compliance with said technical
specifications and performance standards within three (3) years or such lesser
period as may be necessary to prevent safety, reliability , or environmental harm.
The DOE shall within sixty (60) days upon receipt of such plan, evaluate the
same and notify the Gas Distribution Utility concerned whether its plan is
accepted. Fallure to submit a feasible plan and/or failure implement the same
shall serve as grounds fro the imposition of appropriate sanctions, fines or
penalties

Sec, 24 Abandonment of Gas distribution Systems. — No holder of a Permit
for the construction installation, operation or maintenance of a Gas system shall
abandon or withdraw from service any portion of such Gas Distribution System
without obtaining prior authorization from the DOE which determination shall be
made within one hundred eighty (180) days from the filling of the application for
abandonment. Such abandonment shall be done in accordance with existing
laws

SEC. 25 Fees. ~ The DOE shall have the authority to prescribe and collect fees
and charges relating to the issuance and/or review of permits, and other service
related to the supervision and regulation of gas Distribution Systems.

CHAPTER
SUPPLY SECTOR

Sec. 26 Gas Permit Requirement.- Any law to the contrary notwithstanding , no
person may engage in any Supply activity unless it has obtained a permit, as
appropriate from the DOE. For this purpose, the DOE shall promulgate rules and
regulations prescribing the qualifications of Supplier which shall include, among
other requirements, a demonstration of their technical capability, financial
capability, and creditworthiness. The DOE shall have authority to require
Suppliers to furnish a bond or other evidence of the ability of a Supplier to
withstand market disturbances or other events that may increase the cost of
providing service

SEC. 27 Condition for Suppliers’ Access to Customers of Gas Distribution
‘Systems. — Upon the implementation of third Party Access as stipulated in the
Gas Permit for a Particular Gas Distribution System, large end-users in the
geographic area serves by the Gas Distribution System which meet the criteria
set forth in the guidelines promulgated by the DOE pursuant to this Act may enter
into Gas Supply contracts with any supplier. The DOE shall determine End-
users or classes of End-users that are eligible for direct access by Suppliers,
giving consideration to relevant factor including whether such End-user or class
of end-users constitute a Contestable Market and the Financial consequences of
any assets potentially stranded by expending Supply competition.


CHAPTER VIII
OWN-USE FACILITIES

Sec. 28 Own-Use Permits. Permits for the Transmission and/or Distribution of
Natural Gas for own-use shall be granted for a specific capacity and defined
route, and only final users may be the holders of such permits. In issuing a
Permit, the DOE shall have the power to attach such reasonable terms and
conditions to the Permit as the pubic interest may require. Among such
conditions shall be the requirement that the permit holder comply in full with the
gas Transmission or Distribution Code promulgated by the DOE, as such may be
amended from time to time , and to ongoing regulation by the DOE as provided
herein

CHAPTER IX
RATES AND CHARGES:

Sec. 29 Regulation of rates and Charges. The ERC shall review and approve
the rates, charges and other amounts proposed to be charged by Gas
transmission and Distribution Utilities and suppliers. Where such rates are
applicable to products and service provided to Captive Markets, the ratemaking
methodology to be applied by the ERC shall be based on the principle of full
recovery of prudent and reasonable costs incurred, including a reasonable return
on rate base that is equal to the rate of return on investments of comparable risk,
ot such other principle's that will promote the determination of just and
reasonable rates. Rates and charges for products and/or services in Contestable
Markets shall be deregulated. Rates and charges shall be calculated on the basis
of Unbundled Service,

SEC. 30 Prohibition of Discriminatory and Unreasonable Rates and
Charges.- No Gas transmission utility , Gas Distribution utility or Suppliers shall,
with respect to the transmission, Distribution or supply of Natural Gas (1) make
or grant any undue preference or advantage or (2) Maintain any unreasonable
difference in rates, charges , service, facilities, or in any other respect between
locations, or between classes of service; or types of customers.

SEC. 31 Prohibition of Cross Subsidies. Gas transmission and Distribution
Utilities shall not, directly or indirectly, subsidize the provision of service with rate
for other service or for the marketing of gas, or subsidize the marketing of gas
with rates for the service.

SEC. 32 Separate Accounting Systems. For purpose of the preceding section,
Gas Transmission and Distribution Utilities must separate, if applicable the
financial information relevant to the provision of transmission storage and
Distribution services, as well as the marketing of gas, in such a way as to clearly
identify income, costs and operational expenses of each items.

SEC. 23 Take -or-pay Obligations. For the purpose of determining their
eligibility for a passthrough to end-users, take-or-pay provisions in Gas Sales and
Purchase Contract shail

(i) Index the contract price to the price of competing alternative fuels such as
heavy fuel oil and /or gas oil based on internationally accepted references
standards;

(li) Include re-opener mechanisms to allow for the adjustment of the price and/or
volume commitments under extraordinary circumstance causing severe


economic hardship to either party such as price movements in competing
altemative fuel market or charges in the gas purchaser's market such as
substantial contraction in forecast demand levels;

(ili) Provide for a reasonable period for recovery of take-or-pay payments.

Potential parties to a gas Sales and Purchase Contract may, at their option, and
prior to the executive of such contract, request that the DOLE review their take-
of-pay provisions for their consistency with a(i) and a(ii) above;

No party to gas Sales and Purchase Contract may be complelied to renegotiate
any term or condition of a duly executed Gas Sales and Purchase Contract or to
incorporate terms or conditions in such contract which are not commercially
acceptable to it or its counterparty, it being sufficient that the terms and
conditions of the contract as a whole mitigate the potential impact upon End-
users of take ~or- pay provisions.

CHAPTER X
RATEMAKING PROCEDURES OF THE ERC

Sec. 34 filing of Rate Schedules. - Under such rules and regulations as the
ERC may prescribe , the ERC may require reports or documents from gas
Transmission Utilities, Gas Distribution Utilities or Supplier showing all rates and
charges for the Transmission , Distribution, or Supply of Natural Gas and the
classifications, practice, and regulations affecting such rates, charges, and
classifications and services, provided that the ERC shall , in the implementing
rules and regulations of this Act, provide appropriate mechanisms to protect the
confidentially of any information that is commercially or competitively sensitiv

SEC. 35 Changes in Rate and Charges. ~ Within thirty (30) days of filing for a
change in rates, the ERC shall issue an order accepting, rejecting, or setting for
hearing such change. The ERC may, upon the filling of an application therefore
or at any stage thereafler with or without prior hearing, on the basic of supporting
papers duly verified or authenticated, and with such notice to the affected parties
and opportunity for such parties to make such submissions as the ERC
determines to be appropriate in the circumstances, grant provisional relief interim
rates for the transmission , Distribution or Supply of Natural Gas applicable
during the pendency of the hearing on the application, on motion of a party in the
case or on its own initiative, without prejudice to a final decision after hearing
,Should the ERC find that the pleadings , together with such affidavits, documents
and other evidences which may be submitted in support of the motion ,
substantially support the provisional order. The final order fixing the applicable
ratés shall provide for over-or-under-recovery of cost occasioned by the
application of ERC-approved interim rates. At any hearing involving rates
adjustment, the burden of proof to show that the increased rates are just and
reasonable shall be upon the gas transmission utility, gas distribution utility or
supplier.

CHAPTER XI
PROMOTION OF COMPETITION
SEC. 36 Market Power abuse and Anti-Competitive Behavior.- [a] No Gas
transmission Utility, Gas Distribution Utility or Supplier, or affiliate thereof may

abuse its market power. Such abuse may include, but shall not be limited to,
agreeing with competitors to fix prices, fix output, fix prices, fix output of products


or services, or divide markets or customers: tying arrangements ; unduly
discriminatory or preferential practices; or misrepresentation or false advertisin,

[b] The DOE shall monitor and, after due notice and hearing upon compliant or
on its own initiative, penalize any such market power abuse or anti-competitive or
discriminatory act or behavior. Upon finding that a natural gas industry
participants has engaged in such act behavior, the DOE shall stop and redness
the-same. Such remedies shall, without limitations, include the imposition of
price controls, issuance of injunctions, or disgorgement of excess profits and
imposition of administrative fines and penalties pursuant to this Act;

[c] The DOE shall , within one [1] year from the effective date of this Act,
promulgate rules and regulations providing for a complaint procedure that,
without limitation, provides the party alleged to have engaged in anti-competitive
or abusive the party alleged to have engaged in anti-competitive or abusive
activities with notice and an opportunity to be heard.

SEC. 37 Affiliated Suppliers. — In order to prevent Anti-Competitive conduct,
Service contractors, Gas Transmission Utilities and Gas Distribution Utilities that
‘own or control affiliates that are Suppliers shall conduct their business as follows;

(a) No preference will be given to the Affiliated Supplier over other Persons
through contracting for available capability, scheduling, balancing , curtailment
priority or Tariffs;

(b) Marketing information provide to the Affiliated Supplier will be provide to any
non-Affiliated Supplier that is a competitor or potential competitor;

(c) Employees of the Affiliated Suppliers shall, to the maximum extent possible,
function independently in making business decisions; and

(d) Books of accounts and records of the Affiliated Suppliers shall be maintained
separately

CHAPTER XII
TAXES:

SEC. 38 Franchise Taxes. ~ Gas Transmission Utilities and Gas Distribution
Utiities shall pay a Franchise tax equivalent to two percent (2%) of gross
revenues obtained from the rendering of Natural Gas transmission or Distribution
services, as appropriate, pursuant to Republic Act No. 8424, otherwise known as
the Comprehensive Tax Reform Law, as the same may be amended from time to
time. Franchise taxes imposed shall be in lieu of all other taxes imposed under
existing law.

SEC. 39 Excise Tax. The Supply of Natural Gas to the Contestable Market shall
be the only component of the gas retail rate which shall be subject to excise
taxes under the Republic Act-No. 8424, otherwise known as the Comprehensive
Tax Reform Law, as the same may be amended from time to time.

SEC. 40 Withdrawal of Exemptions. — In order to achieve the declared policies
of this Act, including the promotion of fair and nondiscriminatory treatment of
public and private sector entities in the development of the domestic natural gas
delivery infrastructure , all existing tax exemptions applicable to persons engaged
in the Transmission or the Distribution of Natural Gas, insofar as such
exemptions relate to revenues derive from the Transmission or the Distribution of


Natural Gas, shall, any law to the contrary notwithstanding , be deemed revoked
as the Effectivity of this Act.

CHAPTER XiiL
ADMINSTRATIVE FINES AND PENALTIES

Sec. 41 Administrative Fines and Penalties.-

(a) The administrative fines and penalties that shall be imposed by the DOE for
SEC. 36 and any violation of or non-compliance with this Act or the implementing
rules and regulations for this Act shall range from a minimum of fifty thousand
pesos (P50,000.00) to a maximum of fifty million pesos (P50,000,000.00);

{b) Any Person who is found to have engaged in any of the prohibited acts
pursuant to section x hereof shall suffer the administrative penalty or fine ranging
from ten thousand (P10,000.00) to ten million pesos (P10,000,000.00) at the
discretion of the DOE;

(c) The members of the Board of Directors of any Person that violates the
provisions of this may be fined by an amount not exceeding double the amount of
damages caused by the offender al the discretion of the DOE. This rule shall
apply to the members for the Board who knowingly or by neglect allow the
commission or omission under the law;

(d) Any party to an administrative proceeding may, at any time, make an offer to
the DOE, conditionally or otherwise, for a consent decree, voluntary compliance
or desistance and other settlement of the case. The offer and any or all of the
ultimate facts upon which the offer is based shall be considered for settlement
purposes only and shall not constitute an admission by the party making the offer
of any violation of the laws, rules, regulations, orders and resolution of the DOE,
nor as a waiver to file any warranted criminal actions;

(e) In addition Congress may , upon recommendation of the DOE, revoke such
franchise or privilege granted to the party who violated the provision of this Act.

CHAPTER XIV
ANTI-PILFERAGE PROVISIONS.

SEC. 42 Pilferage. It is hereby declared unlawful for any person to:

(a) Tap, make or cause to be made any connection with the any Gas
transmission System or Gas Distribution System without previous authority or
consent of the Gas transmission Utility or Gas Distribution Utility concerned:

(b) Tamper, install or use tampered meters or any other device which interferes
with proper or accurate registry or meeting of Natural gas flows or otherwise
results in its diversion in a manner whereby Natural Gas is stolen or wasted;

(c) Damage or destroy any Natural Gas meter, equipment , pipeline or conduit or
any part of a Gas transmission system or Gas Distribution System or allow any of
them to be so damaged or destroyed as to interfere with the proper or accurate
metering of Natural Gas flows; and .

(d) knowingly use or receive the direct benefits of Natural Gas delivery service
obtained through any of the acts mentioned in subsections (a), (b), and (c)
above.


SEC. 43 Theft of Equipment and Materials. — It is hereby declared unlawful for
any person to:

(a) Cut, saw, slice separate, split , severe , smelt , or remove any portion of a
Gas Transmission System or Gas Distribution System , including pipeline
materials and meters, form any installation or place of installation or any other
place or site where it may be rightfully or lavully store , deposited, kept, stocked,
inventoried, situated or located , without lawful purpose , any portion of a Gas
Transmission System or Gas Distribution System, including pipeline materials or
meters, without the consent of the Gas Transmission Utility of Gas Distribution
utility concemed , whether or not the act is done for profit or gain

SEC. 44 Penalties.

(a) Violation of Section 42. The Penalty of prisons mayor or a fine ranging from
ten Thousand pesos (P10,000.00) to Twenty thousand pesos (P20,000.00) or
both , at the discretions of the court , shall be imposed on any person found guilly
of violating Section 42 hereof.

{b) Violation of Section 43. The penalty of reclusion temporal or a fine ranging
from Fifty thousand pesos (P50,000.00) to One hundred thousand pesos
(P100,000.00) or both at the discretion of the court , shall be imposed on any
person found guilty of violating Section 42 hereof.

(0) Provision common to violation of section 42 and 43 hereof. If the violation of
section 42 and section 43 hereof is committed by, or connivance with, an officer
or employee of the Gas Transmission Utility or Gas Distribution Utility concerned,
such officer or employee than the penalty provided herein, and forthwith be
dismissed and perpetually disqualified from employment in any public or private
utility or service company and from holding any public office.

If the violation of Section 42 and Section 43 hereof is committed by a partnership,
firm, corporation, association or any other legal entity, including a government-
owned or controlled corporation, the penalty shall be imposed on the
president, manager and each of the officers thereof who shall have knowingly
permitted, failed to prevent or was otherwise responsible for the commission of
the offense.

CHAPTER XV
FINAL PROVISIONS

SEC. 45 Implementing Rules and Regulations. The DOE shall, in consultation
with relevant government agencies, the Natural Gas Industry participants, non-
government organizations and end-users, promulgate Implementing rules and
regulations of this Act within six (6) months from its date of effectivity

SEC. 46 Separability Clause. ~ If for any reason, any provision of this Act is
declared unconstitutional or invalid, the other parts or provisions hereof which are
not affected thereby shall continue to be in full force and effect.

SEC. 47 Non-Retroactivity Applicability and Repealing Clause. ~The
provisions of Republic Act No. 387, otherwise known as the Petroleum Act of
1949, as amended , insofar as said provisions relate to the transmission and
Distribution of Natural Gas by pipeline concessionaires or other concessionaires ,
as such terms are defined in the Petroleum Act of 1949, section 11 (b) thereof
obligating the Philippine government to grant pipeline concession for the
transmission and Distribution of Natural Gas under specified circumstance, are


a

hereby repealed or amended. The provision of Presidential decree No. 87, as
amended, insofar as the provision thereof relate to the transmission and
distribution of Natural Gas by Service Contractors, as such term is defined in
presidential decree No. 87, as amended , are hereby amended. All other laws,
decrees, executive, rules and regulations, circulars or other governmental
issuance referring to the transmission , Distribution, or supply of Natural Gas, or
otherwise authorizing any governmental or other entity to issue licenses, permits,
certificates or other authorization for the transmission, Distribution, or Supply of
Natural Gas, are hereby repealed or amended accordingly. Further , all other
laws, decrees, executive orders, rules, regulations, circulars or other
governmental issuances defining the term "Natural Gas “ are hereby amended
such that the definition of Natural Gas in this Act shall be deemed the definitions
of "Natural Gas” for purpose of the said laws decrees executive orders, rules,
regulations , circulars or other governmental issuances. Notwithstanding the
foregoing ,nothing in this Act shall be deemed to revoke or otherwise modify
existing concession granted under the Petroleum Act of 1949, as amended ,
certificate of public convenience or certificate of Public convenience and
necessity granted pursuant to the Pubic service Law, as amended , specific
congressional franchise for the transmission, Distribution or Supply of Natural
Gas or other

Administrative or regulatory permit or contract, with concession, certificate,
Franchise, permit or contract be allowed to its full term but may not be renewed
except pursuant to the provisions of this Act.

SEC. 48 Effectivty Clause. ~ This Act shall take effect on the fifteenth (15") day
following its publication in at least two (2) national newspapers of general
circulation.

Approved,