FOURTEENTH CONGRESS OF THE 
1 
REPUBLIC OF THE PHILIPPINES 
I 
First Regular Session 
1 
SENATE 
S.B.Nd. 899 
Introduced by SENATOR EDGARDO J. ANGARA 
EXPLANATORYNOTE 
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 199Os, 
it was only 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. 
It 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 
transIate to lower electric bills. 
The EPIRA is evidently anti-poor and anti-people, benefiting only a 
few power generators and distributors. It results in electricity cost that is ore 
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: 
1) 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); L 


2) 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 (PO.23/kwh); 
3) Limitation of PPA charged by distribution utilities to twenty three 
centavos (P0.23); 
4) Exemption from PPA of end-users consuming less than 100 KWH a 
month; 
5) 50% discount on PPA or universal charge for end-users consuming 100 
KWH to less than 300KWH a month; 
6) 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; 
7) Stringent review by the NPC of its stranded costs; 
8) 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; 
9) 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. 
EDG w 
RDO J. ANGARA 
Senator 


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FOURTEENTH CONGRESS OF THE 
First Regular Session 
REPUBLIC OF THE PHILIPPINES 
SENATE 
s.B.N~. 899 
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 PURPOSES 
Be it enacted by the Senate and the House of Representatives of the 
Philippines in Congress assentbled: 
SECTION 1. Section 2 of Republic Act No. 9136 is hereby amended to 
read as follows: 
“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 
supply of electric power; 
(c) To ensure transparent and reasonable prices of electricity in a 
regime of free and fair competition and full public accountability to 
achieve 
(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; 
ownership base of the power generation, transmission and 
distribution sectors; 
(e) To ensure fair and non-discriminatory treatment of public and 
private sector entities in the process of restructuring the electric 
power industry; 
(f) 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; 
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(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 OBLIGATIONS 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; 
(1) TO DEVELOP CONCRETE STRATEGIES TO STRENGTHEN 
RURAL ELECTRIC COOPERATIVES ‘ I .  
SECTION 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, INCLUDING, BUT NOT LIMITED TO, 
COMPLIANCE WITH A MINIMUM LEVEL OF CAPACITY TO BE 
DETERMINED BY THE ERC, THE GRID CODE, DISPATCH 
SYSTEM AND WHOLESALE SPOT MARKET RULES, as well as 
health, safety and environmental clearances from the appropriate 
government agencies under existing laws. 
Any law to the contrary notwithstanding, power generation 
shall not be considered a public utility operation. For this purpose, any 
person or entity engaged or which shall engage in power generation 
and supply of electricity 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 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 generated power by generation companies shall be value 
added tax zero-rated. The ERC shall, in determining the existence of 
market power abuse or 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 GUARANTEES, AMONG OTHERS." 
SECTION 3. Section 31 of the Act is hereby amended to read as 
.lows: 
"SEC. 81. Retail Competition and Open Access. - Any law to 
the contrary notwithstanding, retail competition and open access on 
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 conditions: 
(a) Establishment of the wholesale electricity spot market; 
(b) Approval of unbundled transmission and distribution wheeling 
charges; 
[c) Initial implementation of the cross subsidy removal scheme; 
[d) Privatization of at least seventy (70%) percent of the total capacity 
of generating assets o'f 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 demand within a contiguous 
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area is at least seven hundred fifty kilowatts (7501W). Subsequently 
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and every year thereafter, the ERC shall evaluate the 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 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 
1ws: 
"Sec. 32. NPC Stranded Debt and Contract Cost Recovery. 
- Stranded debt of NPC shall refer to any unpaid financial obligations 
of NPC. 
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 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. 
TO PROTECT THE PUBLIC FROM ONEROUS AND 
GROSSLY DISADVANTAGEOUS PROVISIONS ARISING PROM 
PRIVATELY NEGOTIATED CONTRACTS, [tlhe national government 
shall be made to assume a portion of the financial obligations of NPC 
in an amount not to exceed FIVE [Two] hundred billion pesos /P500, 
000,000,000.00) [(P200, 000,000,000.00) UPON SHOWING OF PROOF 
TO THE ERC THAT THE NPC HAS UNDERTAKEN A STRINGENT 
AND EXHAUSTIVE PROCESS OF MITIGATION, SEGREGATION 
AND DISPOSITION. 
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 
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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 
S: 
“SEC. 33. Distribution Utilities Stranded Contract Costs 
Recouery. - Stranded contract costs of distribution utilities shall refer 
to the excess of the contracted cost of electricity under eligible 
contracts of such utilities 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 price of land-based IPP 
projects entered into by NPC at the time they were 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 
EXCEEDTWENTY 
THREE 
CENTAVOS 
PER 
KILOWATT HOUR (PO.23/KWH); PROVIDED, FINALLY, THAT THE 
DISTRIBUTION UTILITY SHALL REFINANCE THEIR STRANDED 
CONTRACT COSTS ARISING FROM ELIGIBLE CONTRACTS 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. 
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"A DISTRIBUTION UTILITY SHALL BE ENTITLED TO 
RECOVER FROM THE UNIVERSAL CHARGE OVER A PERIOD OF 
NOT LESS THAN FIFTEEN (15) YEARS BUT NOT MORE THAN 
TWENTY-FIVE (25) YEARS, AN AMOUNT DETERMINED BY THE 
ERC AND IN ACCORDANCE WITH THE PROVISIONS OF THIS 
SECTION REPRESENTING ITS STRANDED CONTRACT COSTS 
FROM ELIGIBLE CONTRACTS AND THE COST OF REFINANCING 
DIRECTLY 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 (P0.23IKWH). 
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 
THATTHESTRANDEDCOSTCOULDNOLONGERBEFURTHER 
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 
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utility that does not file within the date specified shall not be eligible 
for such recovery. 
"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 o f  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 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 A 
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 
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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 the 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/KWH). 
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 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 
ws: 
"Sec. 34. Universal Charge. - Within one (1) year from 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 [;I: PROVIDED, 
THAT END-USERS SHALL BE CHARGED NOT MORE THAN 
TWENTY THREE CENTAVOS (P0.23) PER KWH 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 
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NO 
CASE 
SHALL THE AMOUNT OF RECOVERABLE 
STRANDED CONTRACT COSTS OF A DISTRIBUTION UTILITY 
EXCEED TWENTY THREE CENTAVOS PER KILOWATT HOUR 
(PO .23/KWH). 
6) Missionary electrification; 
(c) The equalization of the taxes and royalties applied to indigenous or 
renewable sources of energy vis-a-vis imported energy fuels; 
(d) An environmental charge equivalent to one-fourth of one centavo 
per kilowatt-hour (PO.O025/kwh), which shall accrue to an 
environmental fund to 'be used solely for watershed rehabilitation 
and 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-by passable 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 AND REDUCTION OF PPA. - 
ENDUSERS 
CONSUMING 
LESS 
THAN 
ONE 
HUNDRED 
KILOWATT HOURS (100 KWH) 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 (3OO/KWH) PER MONTH SHALL ONLY BE REQUIRED TO 
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PAY FOR FIFTY PER CENT (50%) OF THE PPA CORRESPONDING 
TO NPC. 
A DISTRIBUTION UTILITY MUST IMMEDIATELY EFFECT 
A PROPORTIONATE REDUCTION IN THE POWER PURCHASE 
ADJUSTMENT (PPA) AND SUBSEQUENTLY, THE COMPONENT 
O F  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 PARAGRAPHS OF THIS SECTION." 
SECTION 9. Section 43(f) of the Act is hereby amended as follows: 
"Sec. 43. Functions 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") FORMS OF RATE- 
SETTING BY JUNE 1, 2003. PRIOR TO SUCH DATE, THE ERC 
SHALL ADOPT RATE-SETTING FORMS WHERE t [Tlhe 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 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 
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setting methodology used is RORB, it shall be subject to the 
following guidelines: 
(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, howeuer, That ERC may give an exemption in case of 
unusual devaluation: Provided, further, 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 FOUR AND A 
HALF PER CENT (4%%) OF TOTAL ENERGY PURCHASED are 
fiat allowable deductions from permissible return on rate base; 
(iii) In determining eligible cost of services that will be 26 passed on to 
the end-users, the ERC shall establish minimum efficiency 
performance standards for the TRANSCO and 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 
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purchasing practices] PROCUREMENT PROCEDURES NO LESS 
2 
STRINGENT AND TRANSPARENT THAN GOVERNMENT 
3 
PROCUREMENT GUIDELINES, AND SUBJECT TO OPEN 
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COMPETITIVE PUBLIC BIDDING IN ORDER to protect the 
5 
public interest.” 
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follows: 
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“Sec. 46. Cross Ownership, Market Power Abuse and Anti- 
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Competitive Behavior. - No participant in the electricity industry or 
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any other person may engage in any anti-competitive behavior 
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including, but not limited to, cross-subsidization, price or market 
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manipulation, or other unfair trade practices detrimental to the 
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NO 
DISTRIBUTION 
UTILITY, 
ITS 
RESPECTIVE 
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SUBSIDIARY OR AFFILIATE OR STOCKHOLDER OR OFFICIAL 
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OF A DISTRIBUTION UTILITY SHALL BE ALLOWED TO HOLD 
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ANY 
INTEREST, 
DIRECTLY 
OR 
INDIRECTLY, 
IN 
ANY 
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GENERATION COMPANY: PROVIDED, THAT THE DISTRIBUTION 
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UTILITY HOLDING AN INTEREST IN ANY GENERATION 
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COMPANY AT THE TIME OF THE PASSAGE OF THIS ACT SHALL 
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BE REQUIRED TO DIVEST THE SAME WITHIN ONE (1) YEAR 
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FROM THE EFFECTIVITY OF THIS ACT. 
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No generation company, distribution utility, or its respective 
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subsidiary or affiliate or stockholder or official of a generation company 
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or distribution utility, or other entity engaged in generating and 
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supplying electricity specified by ERC within the fourth civil degree of 
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consanguinity or affinity, shall be allowed to hold any interest, directly 
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or indirectly, in TRANSCO or its concessionaire. Likewise, the 
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TRANSCQ, or its concessionaire or any of its stockholders or officials 
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or any of their relatives within the fourth civil degree of consanguinity 
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or affinity, shall not hold any interest, whether directly or indirectly, in 
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any generation company or distribution utility. Except for ex officio 
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government-appointed representatives, no person who is an officer or 
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director of the TRANSCO or its concessionaire shall be an officer or 
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director of any generation company, distribution utility or supplier. A 
SECTION 10. - Section 45 of the Act is hereby amended to read as 
encouragement and protection of contestable markets. 
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GENERATION COMPANY MAY BE PERMITTED TO HOLD 
INTEREST, 
DIRECTLY 
OR 
INDIRECTLY, 
IN 
ANOTHER 
GENERATION COMPANY: PROVIDED, THAT THE EXTENT OF 
SUCH INTEREST SHALL BE LESS THAN THE AMOUNT OF 
SHARES NEEDED TO VOTE ONE MEMBER OF THE BOARD OF 
DIRECTORS. 
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 ERG: 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 respect to another entity refers to any 
person which, alone or together any other person, directly or 
indirectly, through one or more intermediaries, controls, is 
controlled by, or is under common control with, such entity; and 
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(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 
SUPERVISED BY THE ERC: PROVIDED FURTHER, THAT 
AFTER 
THE 
FIRST 
FIVE 
(5) 
YEARS 
FROM 
THE 
ESTABLISHMENT OF THE WHOLESALE ELECTRICITY SPOT 
MARKET, THE ERC SHALL ISSUE GUIDELINES GOVERNING 
BILATERAL POWER SUPPLY CONTRACTS TO ENSURE 
INCREASED USAGE OF WHOLESALE ELECTRICITY SPOT 
MARKET. 
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 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. 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 
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 
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Section. 
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The ERC shall, motu proprio, monitor and penalize any market 
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power abuse or anti-competitive or discriminatory act or behavior by 
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any participant in the electric power industry. Upon finding that a 
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market participant has engaged in such act or behavior, the ERC shall 
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stop and redress the same. Such remedies shall, without limitation, 
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include the imposition of price controls, issuance of injunctions, 
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requirement of divestment or disgorgement of excess profits and 
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The ERC shall, within one (1) year from the effectivity of this 
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Act, promulgate rules and regulations providing for a complaint 
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procedure that, without limitation, provides the accused party with 
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notice and an opportunity to be heard.'' 
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follows: 
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"Section 68. Review of IPP Contracts - An inter-agency 
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committee chaired by the Secretary of Finance AND CO-CHAIRED BY 
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THE SECRETARY OF ENERGY, with [the Secretary of the 
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Department of Justice and] the Director General of the National 
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Economic 
and 
Development 
Authority 
AND 
FOUR 
(4) 
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INTERNATIONAL ENERGY EXPERTS TO BE APPOINTED BY THE 
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PRESIDENT as members thereof is hereby created upon the effectivity 
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of this Act. The Committee shall immediately undertake a thorough 
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ARMS-LENGTH Review of all IPP contracts ENTERED INTO BY 
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NPC AND ANY DISTRIBUTION UTILITY. In cases where such 
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contracts are found 
to have 
provisions 
which 
are 
grossly 
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disadvantageous, or onerous to the Government OR THE END- 
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USERS, the Committee shall RENEGOTIATE THE CONTRACTS 
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WITH THE IPPS, IN ADDITION TO CAUSING [cause] the 
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appropriate government agency to file an action under the arbitration 
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clauses provided in said contracts or INITIATING [initiate] any 
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appropriate action' under Philippine laws. The PSALM Corporation 
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shall diligently seek to reduce stranded costs, if any; PROVIDED, 
(c) the periodic reportorial requirements of electric power industry 
participants as may be necessary to enforce the provisions of this 
imposition of fines and penalties pursuant to this Act. 
SECTION 11. Section 68 of the Act is hereby amended to read as 
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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. - If any provision of this Act is 
held to be unconstitutional or invalid, the same shall not affect the remainder 
thereof. 
SECTION 13. Repealing Clause. --- All laws, presidential decrees, 
executive orders, rules and regulations, and part thereof, which are 
inconsistent with the provisions of this Act, are hereby repealed or modified 
accordingly. 
SECTION 14. Effectivity, --- This Act shall take effect fifteen (15) 
days after publication in the Official Gazette or two (2) newspapers of general 
circulation. 
Approved, 
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