SEVENTEENTH CONGRESS )
OF THE REPUBLIC OF THE PHILIPPINES _ )
First Regular Section )

HOUSE OF REPRESENTATIVES

House Bill No. 5617

Introduced by Representative Victor A. Yap

EXPLANATORY NOTE

Free market and open competition stimulates the economy. In an arena where every party
has a chance to engage and benefit from free trade, the ultimate winner is always the consumer.
By allowing all players equal opportunity to offer their services to the public, people are

empowered to make their own choices and control their destiny.

This principle is not less true even in a highly regulated public utility like energy. The
Electric Power Industry Reform Act of 2001 declares it the policy of the State “to ensure the
quality, reliability, security, and affordability of the supply of electric power, to ensure
transparent and reasonable prices of electricity in the regime of free and fair competition and full
public accountability, and to protect the public interest as it is effected by the rates and services

of electric utilities and other providers of electric power.”

Competitive Selection Process is a recognized practice in the Energy industry. It allows
for greater private sector participation in energy generation. The Department of Energy (DOE)
and the Energy Regulatory Commission (ERC) released a Joint Resolution entrusting to the latter
the responsibility of issuing the appropriate regulations to implement the CSP. The resolution
also allowed distribution utilities to conduct CSPs on their own, subject to the review of the

ERC.'

‘ ERC Resolution No. 13 entitled “A Resolution Directing All Distribution Utilities (DUs) to
conduct a competitive selection process (CSP) in the Procurement of their Supply to Captive
Market.” 4 November 2015.


This bill seeks to institutionalize the Competitive Selection Process and promote open
competition and transparency in energy generation. There shall be established a centralized CSP
conducted by a Third Party Auctioneer. Further all CSP related information such as power
supply agreements, contracts and forms shall be standardized and will be available to the public.

We hope that all these would create a more competitive energy generation sector and will
result to cheaper cost of energy in the market. In the interest of economic progress and social
development, support for the passage and approval of this legislation is earnestly sought.

IR A.

P
Represenjative, Second District, Tarlac


SEVENTEENTH CONGRESS. )
OF THE REPUBLIC OF THE PHILIPPINES)
First Regular Section )

HOUSE OF REPRESENTATIVES

; 5617

House Bill No.

Introduced by Representative Victor A. Yap

AN ACT
INSTITUTIONALIZING REFORMS IN THE PROCUREMENT BY DISTRIBUTION
UTILITIES OF SUPPLY FOR THE CAPTIVE MARKET

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

Congress assembled:

CHAPTER I
GENERAL PROVISIONS

SECTION 1. Title. — This Act shall be known as the “Energy Procurement Act of
2017”.

SECTION 2. Declaration of Policy. ~ It is hereby declared the policy of the State to
ensure the quality, reliability, security, and affordability of supply of electric power. To protect
public interest, as it is affected by the rates and services of electrical utilities and other providers
of electric power, the State recognizes that a Competitive Selection Processin the procurement of
Power Supply Agreementsby distribution utilitiesengenders transparency, enhances security of

supply, and ensures stability of electricity prices to captive electricity end-users in the long term.

SECTION 3. Scope and Application. - This Act shall apply to any distribution utility
that owns, operates, or controls one or more distribution systems in the main gridand off-gridin
the procurement of supply for their captive market, the matter in which the procurement is to be
undertaken, the review process to be required, and the timelines to be observed in such

processes.


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SECTION 4. Definition of Terms. — For purposes of this Act, the following shall be

defined as:

a) Aggregated Demand ~ refers to the distribution utilities’ consolidated level of hourly,
daily, monthly, or annualelectric power demand;

b) Captive Market — refers to the electricity end-users who do not have the choice of a
supplier of electricity, as may be determined by the ERC, in accordance with EPIRA;

©) Competitive Selection Process(CSP) ~ refers to a process wherein a generation company
is selected through transparent and competitive bidding undertaken by a distribution
utility to secure supply of power at the least cost;

4) Competitive Bidding ~ refers to a method of procurement which is open to participation
by generation companies and distribution utilities and which consists of the following

process: advertisement or publication, pre-qualification conference, eligibility screening,

determination of price for the procurement through competition of participating bidders,
evaluation, post-qualification, and award of contract;

©) Demand Aggregation — refers to the process where distribution utilities group together to
combine their demand or energy requirements in order to subject it to a CSP;

1) Distribution Utility — refers to any electric cooperative, private corporation, government
owned utility,existing local government unit which has an exclusive franchise to operate
a distribution system in accordance with EPIRA, multi-purpose cooperatives duly
authorized by appropriate government agencies to operate electric power system, or any
other duly authorized entity engaged in the distribution of electricity to captive
customers;

g) Energy Regulatory Commission — refers to the regulatory body created pursuant to
EPIRA;

h) EPIRA — refers to Republic Act No. 9136, otherwise known as the Electric Power
Industry Reform Act of 1991;

i) Electric Cooperative — refers to a distribution utility organized pursuant to Presidential
Decree No. 269, as amended, or as otherwise provided in EPIRA;

J) Generation Company ~ refers to any person or entity authorized to operate facilities used
in the generation of electricity;

k) Grid — refers to the high voltage backbone system of interconnected transmission lines,
substations and related facilities;

1) Power Supply Agreement (PSA) — refers to a contract between a generation company and
a distribution utilitywhereby the latter purchases power from the former;

m) Power Supply Procurement Management Plan (PSPMP) ~ refers to a distribution utility's
assessment of a variety of its demand side and supply side resources to cost-effectively

meet customer electricity service needs; and


CHAPTER IL
COMPETITIVE SELECTION PROCESS

SECTION 5. Competitive Selection Process (CSP). — All distribution utilities are
mandated to subject all the uncontracted demand of their captive market to aCSP in accordance
with this Act, its implementing rules and regulations (IRR), and the CSP framework. All PSAs
shall only be awarded after the conduct of a CSP except as otherwise provided in this Act:
Provided, That the entire CSP process shall not exceed sixty (60) days from the advertisement or
publication of the call for bidders, unless exigent circumstances warrant the extension of the

period.

The CSP shall be conducted by a Third Party Auctioneer and shall be operational not
later than six (6) months from the effectivity of this Act. To this end, the DOE shall establish a
CSP framework which, at the minimum, shall contain the following:

a) Procedure and schedule for a centralized CSP which shall incorporate the competitive
bidding rules and design;

b) Comprehensive terms of reference, payment structure, and prohibited acts as well as
corresponding fines and penalties for the Third Party Auctioneer;

¢) Standardized forms and bid documents which shall contain, among others:

i) Requirement for eligibility of prospective bidders,

ii) Required Capacity and/or Energy Volumes,

iii) Generation sources, if applicable,

iv) Load requirement (base load, mid-merit, or peaking), if applicable,

v) Method of procurement for fuel, if applicable,

vi) Cooperation/Contract Period (short-term, medium-term, long-term),

vii) An unbundled tariff structure includingbut not limited to capacity fees, variable
and fixed operating and maintenance fee, fuel fee, and others, including the
derivation of each component, base fee adjustment formula, if any,

viii) ‘The form and method of payment,

ix) Bonds and guarantees,

x) Penalties for delay, non-performance of contract, and breach of confidentiality,
and

xi) For greenfield power generation projects, the grid impact study and/or similar
requirements prescribed by DOE;

d) Standardized PSA and any other necessary contracts for the CSP;
€) Qualification criteria to determine the winning bidder;
f) Procedure for the Swiss Challenge Procurement;

g) Timelines to be observed;


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hh) Instances, requirements, and procedures for demand aggregation;
i) Procedure and requirements for expedited CSP for emergency procurements by

distribution utilities; and

4) Other such procedures that will ensure an open, transparent, and competitive bidding.

The CSP framework shall be regularly reviewed by the DOE to reflect existing policies
and to facilitate a more streamlined and transparent CSP for distribution utilities.

The ERC shall have the power to review whether the parties have complied with the
requirements of CSP established under this Act, its IRR, and the CSP framework, as provided for

under Section 14 of this Act.

SECTION 6. Swiss Challenge Procurement. —Upon two (2) failed CSPs, a generation
company may submit an unsolicited proposal to a distribution utility which shall then invite
competitive counterproposals in such manner asmay be provided in the IRR and CSP framework.
Thereafter, the original bidder shall be given the opportunity to match the best bid which comes
out of the counterproposals.

A CSP is considered failed when, during its conduct, any of the following circumstances
exists:
a) Only one generation company submitted an offer; or
b) Generation companies failed to meet the requirements to participate as a bidder, as
determined by the Third Party Auctioneer.

Upon failure of each CSP, the Third Party Auctioneer shall submit a report to the DOE.
and the ERC, the contents of which shall be provided in the IRR.

SECTION 7. Power Supply Procurement Management Plan. — Every distribution
utility shall develop its Power Supply Procurement Management Plan (PSPMP) and undertake a
cost-benefit analysis of the power supply requirements for the captive market taking into
consideration, among others, prevailing price in the market, energy demand forecasting, load

matrix, and existing DOE policies.

The PSPMP shall be updated annually and approved by the Board of Directors ofthe
distribution utility and submitted to the ERC and DOE on or before the 31 of March every year.
In the case of electric cooperatives, the report shall also be submitted to the NEA. In all cases,
ERC, DOE, and NEA shall act on the submission within sixty (60) days from receipt of the


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PSPMP. For purposes of transparency, the approved PSPMPs shall be posted by the DOE in
the electronic portal as provided for under Section 12 of this Act.
The contents of the PSPMP shall include but shall not be limited to the following
information:
a)
db)

©)

Planning and acquisition period (short-term, medium-term, and long-term);

Demand forecast, forecasted load profile, and load duration curve, if applicable;

Additional resource requirements, if applicable;
4) Resource acquisition plan, if applicable;

°)

Demand side management programs, if applicable;
£) Mandated renewable energy quota pursuant to the incentive mechanisms under the
Renewable Energy Act.if applicable; and

g) Any additional information that DOE may require.

No CSP shall be undertaken unless it is in accordance with the approved PSPMP of a
distribution utility. In cases of aggregated demand, concerned distribution utilities shall prepare
documentation to demonstrate that the demand subjected to CSP is consistent with

theirrespective approved individual PSPMPs.

SECTION 8. Third Party Auctioneer. ~The Third Party Auctioneer shall undertake the
CSP in accordance with this Act, its IRR, and the CSP framework and shall ensure that parties
abide by the standards set forth in the same.Within sixty (60) days after the close of a
competitive bidding, the Third Party Auctioneer shall prepare a CSP Monitoring Report and
submit it to the ERC as part of its CSP review process. The DOEand ERC shall provide the
contents and coverage of the said report in the IRR.

The Third Party Auctioneer shall be the Market Operator:Provided, That after five (5)
years from the effectivity of this Act, the DOE shall review the performance of the Market
Operator according to a Performance Monitoring and Evaluation Plan (PMEP) incorporated in
the CSP framework.

Should the DOE find that the Market Operator did not substantially meet the performance
targets in the PMEP, it may procure a new Third Party Auctioneer in compliance with all laws
and IRRs related to government procurement. In this case, the DOE may determine the terms of
reference of the new Third Party Auctioneer:Provided,That it shall be a team of private
individuals or a private corporationduly recognized in the Philippines,with no direct or indirect
interest in any generation company and/or distribution utility,having vast experience in
competitive bidding,comprehensive knowledge of the electric power industry, and a
demonstrated ability to manage and conduct the CSPwhile complying with the terms of reference


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and other additional qualifications provided for in the CSP framework:Provided, further, That the
performance of the new Third Party Auctioneer, and any other Third Party Auctioneer thereafter,
shall be reviewed by the DOE after every five (5) years according to the PMEP.

SECTION 9. Observers. — The Third Party Auctioneer shall, in all stages of the CSP,
ensure that there shall be present at least one (1) observer from the DOE, ERC, the Philippine
Competitive Commission (PCC), or the Commission on Audit (COA), or in the case of electric
cooperatives, a member of the NEA, in its proceedings: Provided, That the said person/s do not
have any direct or indirect interest in the PSAs subject to CSP.

The observers shall keep all information acquired by virtue of the proceedings
confidential while the competitive bidding is still on going. Any observer who commits a breach
of confidentiality shall be subject to the administrative disciplinary action under this Act, without
prejudice to any civil or criminal action. Upon finality of the competitive bidding, the observer/s
shall, jointly or separately, file a report indicating their observations on the procurement
activities and submit it to DOE and ERC.

SECTION 10. Standardization of Contracts, Processes, and Forms. — All PSAs,
contracts, forms and documents used during the CSP shall be standardized and unified. For this
purpose, the DOE, with the assistance of ERC, shall develop generic forms, standard bidding
documents, PSAs, and other contracts which, upon issuance, shall be mandatory among

generation companies and distribution utilities.

SECTION 11. Access To Information. ~ In all stages of CSP, the generation companies

and distribution utilities shall ensure equal access to information: Provided, That prior to their
official release, no aspect of the documents used in any CSP shall be divulged or released to any
prospective generation company, distribution utility, or any other person or entity having direct

or indirect interest in the PSAs subject of CSP.

SECTION 12. Electronic Portal. — To further ensure transparency and efficiency in all
transactions, information and communications technology shall be utilized in the conduct of
CSP. The DOE shall develop a portal which shall serve as the primary source of information
onCSP, including the PSPMP: Provided, That the DOE shall ensure the integrity, security, and
confidentiality of all documents submitted through the portal.

SECTION 13. Jurisdiction. - The ERC shall have primary and exclusive jurisdiction

over all contests and cases involving and relating to the conduct of the CSP.


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SECTION 14. ERC Review of PSAs. ~ For PSAs executed pursuant to this Act and its
IRR, the ERC review shall be limited to a determination of whether or not there has been strict
compliance with all the requirements established:Provided, That the ERC may issue additional
regulations to apply to:
a) The review of PSAs procured through a Swiss Challenge;
b) Cases where the parties to the PSA under review are related parties; or

©) Other analogous cases.

In the three (3) abovementioned cases, the review will call for a cost-based evaluation of
the agreed pricing structure or winning bid as reflected in the PSA or benchmarking of

generation prices.

The ERC shall issue the final decision on its review of all PSAs submitted to it pursuant
to this Act within thirty (30) days from filing thereof.

CHAPTER II
PROHIBITED ACTS AND PENALTIES

SECTION 15. Administrative Offenses. — The following acts, when committed by a
government official and/or employee, shall be considered administrative offenses:
a) Breach of confidentiality as provided under Section 9 of this Act;
b) Willful acts which delay the operationalization of the CSP; and
©) Failure to comply with the mandated timelines prescribed to perform specific acts defined
under this Act.

SECTION 16. Penalties. ~Any person found guilty of the Act stated in Sec. 15 (a), on
the first offense shall be suspended from service for six (6) months and one (1) day to one (1)
year without pay, and on the second offense shall be dismissed from service and shall be
perpetually disqualified from re-employment in any government agency or instrumentality.

Any person found guilty of the Act stated in Sec. 15 (b), on the first offense shall be
suspended from service for six (6) months and one (1) day to one (1) year without pay, and on
the second offense shall be dismissed from service and shall be perpetually disqualified from re-

employment in any government agency or instrumentality.

Any person found guilty of the Act stated in Sec. 15 (c), on the first offense shall be
reprimanded, on the second offense shall be suspended from service for one (1) to thirty (30)


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days, and on the third offense shall be dismissed from service and shall be perpetually
disqualified from re-employment in any government agency or instrumentality.

CHAPTER IV
FINAL PROVISIONS,

SECTION 17. Transitory Provision. —Pending the creation and effectivity of the IRR
and the CSP framework, the existing ERC Resolution requiring a CSP shall continue to apply:
Provided, That the ERC shall observe the thirty (30) day period of approval of PSAs as provided
forunder this Act.

SECTION 18. Implementing Rules and Regulations. ~ Within sixty (60) days from the
effectivity of this Act, the DOE, in coordination with the ERC, NEA,and the PCC, shall
Promulgate the necessary rules and regulations to implement the provisions of this
ActFurthermore, the DOE shall promulgate the CSP frameworkwithin sixty (60) days from the
promulgation of the IRR.

SECTION 19. Separability Clause. — If, for any reason, any provision of this Act is
declared to be unconstitutional or invalid, the other sections or provisions hereof which are not
affected thereby shall continue to be in full force or effect.

SECTION 20. Repealing Clause. — All laws, decrees, orders, rules and regulations or
parts thereof which are inconsistent with or contrary to the provisions of this Act are hereby

repealed, amended or modified accordingly.

SECTION 21. Effectivity. - This Act shall take effect fifteen (15) days after its
publication in at least two (2) national newspapers of general circulation.

Approved,