Senate

@Mhice of the Morcvetary
SEVENTEENTH CONGRESS OF THE)
REPUBLIC OF THE PHILIPPINES .
Third Regular Session ) 19 WPR22 AB 43

SENATE i
S.B.No. 7

Introduced by

AN ACT
PROMOTING THE USE OF MICROGRID SYSTEMS FOR THE TOTAL
ELECTRIFICATION OF UNSERVED AND UNDERSERVED AREAS

EXPLANATORY NOTE

Access to electricity affects productivity, health, education, climate change,
food and water safety, and communication services. Due to the encompassing
effect of energy access in communities and countries as a whole, one of the
sustainable development goals of the United Nations is “Affordable and Clean
Energy” where countries are encouraged to accelerate the transition to an
affordable, reliable, and sustainable energy system by investing in renewable
energy resources, prioritizing energy efficient practices, and adopting clean
energy technologies and infrastructure.!

President Rodrigo Roa Duterte, in his Report to the People, recognized the
crucial role of energy access when he emphasized the necessity of reliable
energy to support the growing industries of the country. His administration
aims to achieve 100% household electrification level by 2022 that would benefit
13.32 million households in Luzon; 4.40 million households in Visayas; and
5.27 million households in Mindanao.?

Despite this, an alarming number of 2,779,530 households or 11.7% of the
total number of households nationwide still have no access to electricity.3. The
government has stated that total electrification in unserved areas cannot be
done by traditional grid extension alone but non-traditional means such as
microgrid systems are needed.*

* United Nations. “Sustainable Development Goals”. Goal 7: Affordable and Clean Energy

2 THE PRESIDENT'S REPORT TO THE PEOPLE 2016-2017: Laying the Foundation Towards a Comfortable Life for All
Published by the Office of the President - Presidential Management Staff in collaboration with the national government
departments and agencies. (2017) Page 53,

> DOE. “Total Electrification Strategy” presentation on Senate Committee on Energy hearing o
conducted on 13 August 2018,

‘+ Hearing on Senate Resolution No. (SRN) 695 conducted on 16 April 2018 where NPC-SPUG manifested that microgrid
systems are viable solutions for rural electrification of remote and unviable areas as well as hearing on SRN 695 and
SRN 753 conducted on 13 August 2018 where the DOE manifested its intention of crafting and promulgating an
Executive Order for the President's approval and signature which would allow and promote private sector participation
in microgrid systems. In the same August 2018 hearing, the NEA presented the Strategized Sitio Electrification
Program (SSEP) which utilizes self-contained power systems such as mini-grids, confined to small geographic areas,

N 695 and SRN 753



The problem of energy access is also a concern even in “electrified” areas with
limited electricity service, also referred to as underserved areas. For example,
just last year, of the 171 areas serviced by the National Power Corporation ~
Small Power Utilities Group, 83 or 48.5% of areas received only 4 to 8 hours of
electricity service, while 34 or 19.9% of areas received only 9 to 16 hours of
electricity service.S

The government has tapped the private sector as partner in delivering
electricity and improving the quality of service in unserved and underserved
areas. However, there are significant barriers to entry because of tedious
bureaucratic processes, lack of information on prospective areas for
electrification, and difficulties in obtaining waivers from incumbent utility
franchise holders.°

This bill addresses acceleration of total electrification and the provision of
reliable electricity service in unserved and underserved areas. The salient
provisions of this bill includes (1) mandating the Department of Energy to
annually release and update the list of unserved and underserved areas for
prospective Microgrid Service Providers (MSPs), (2) creating a streamlined
process for MSPs with clear timelines and stiff sanctions for bureaucratic red
tape and delay, and (3) removing the requirement of obtaining waivers from
incumbent franchised utilities for MSPs to provide electricity in unserved and
underserved areas.

Given the foregoing, the immediate passage of this measure i

powering up distant clusters of houses or villages and the Strategized Household Electrification Program (SHEP) which
Utilizes solar home systems that target dispersed households with no access to the grid,

' Hearing on Senate Resolution No. (SRN) 695 conducted on 16 April 2018.

© European Union (EU) - Access to Sustainable Energy Programme (ASEP). Draft on “Encouraging Private Sector
Participation Through Policy Reforms in Oflgrid Areas” (2018)


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Senate
SEVENTEENTH CONGRESS OF THE) ©... ot the Moeveetary

REPUBLIC OF THE PHILIPPINES )
Third Regular Session )

19 NPR 22 AB 43

REED Be

SENATE

S.B.No. 2218

Introduced by SEN. WIN GATCHALIAN

AN ACT PROMOTING THE USE OF MICROGRID SYSTEMS FOR THE TOTAL
ELECTRIFICATION OF UNSERVED AND UNDERSERVED AREAS

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

Philippines in Congress assembled:

SECTION 1. Short Title. - This Act shall be referred to as the “Microgrid

Systems Act.”

SECTION 2. Declaration of Policy. — It is hereby declared the policy of the

State to:
(a) Pursue rural development and poverty reduction towards nation

building through energy ace:

(b) Accelerate total electrification and the provision of reliable electricity
service in unserved and underserved areas;

(c) Promote private sector participation for electrification not only of remote
and unviable areas in particular but also of unserved and underserved
areas in general;

(4) Provide a competitive environment and level-playing field for different
kinds of energy sources; and

(ec). Ensure that electricity consumers will benefit from technologies and

innovations in the electric power industry.

SECTION 3. Scope and Application. ~ This Act shall apply to the development

of microgrid systems in unserved and underserved areas nationwide.



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SECTION 4. Definition of Terms. - For purposes of this Act, the following
terms shall be defined as stated below:

(a) Annual penetration limit refers to the maximum total capacity of grid

tied microgrid systems that can electrically connect to a_ specific

distribution utility

stem, and as a result, buy and sell from the grid

taking into account the distribution utility’s Distribution Development
Plan and existing power supply agreements, Transmission Development
Plan, distribution and transmission system, and other technical
considerations as may be determined by the Energy Regulatory
Commission (ERC);

(b) Benchmark rate refers to the maximum retail rate or generation rate,
whenever applicable, that an MSP can charge and collect from end users
taking into account the microgrid system’s technology, capacity, number
of off takers, and other technical, financial, and economic considerations
as may be determined by ERC;

(c) Distributed energy resource (DER) refers to smaller power sources that
could be aggregated to provide power necessary to meet regular demand;

(d) Distribution system refers to the system of wires and associated
facilities belonging to a franchised distribution utility, extending between
the delivery points on the transmission, subtransmission system, or
generating plant connection and the point of connection to the premises
of the end user;

(c) Distribution utility (DU) refers to any electric cooperative, private
corporation, or government-owned utility which has a franchise to
operate a distribution system including those whose franchise covers

economic zones;

() End user refers to refers to any natural or juridical person requiring the
supply and delivery of electricity for its own use;

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

(h) Grid tied refers to a situation in which a microgrid system is connected
to the distribution system for main or backup power source;

(i) Island mode refers to a situation in which a microgrid system is
electrically isolated from the grid, and the isolated system is energized by

embedded generation or DER;


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(j) Microgrid system refers to a group of interconnected loads and DER
with clearly defined electrical boundaries that acts as a_ single
controllable entity with respect to the distribution, subtransmission, or
transmission grid, whichever is applicable, and can connect and
disconnect from the grid to enable it to operate in both grid tied or island
mode;

(k) Microgrid system provider (MSP) refers to a natural or juridical person
whose business includes the installation of microgrid systems, power
generation assets, or other associated power delivery systems in
unserved or underserved areas nationwide;

() National Power Corporation - Small Power Utilities Group (NPC-
SPUG) areas refers to a geographical area currently being served by the
NPC-SPUG or by a new power provider, and may be an underserved
area;

(m)New power provider (NPP) refers to MSPs who have taken over the
function of National Power Corporation — Small Power Utilities Group
(NPC-SPUG) through the mechanism of privatization provided by the
Department of Energy (DOE) consistent with the Electric Power Industry
Reform Act of 2001, and whose functions are further defined under this
Act;

(n) Qualified Third Party (QTP) refers to MSPs which serve as the
alternative electric service provider authorized to serve remote and
unviable areas under the Electric Power Industry Reform Act of 2001,
and whose functions are further defined under this Act;

Remote and unviable area refers to a geographical area within the

franchise of a DU where immediate extension of distribution line is not
feasible, and may be an unserved or underserved area;

(p) Universal charge refers to a non-bypassable charge which shall be
passed on and collection from all end users on a monthly basis by the
distribution utilities pursuant to the Electric Power Industry Reform Act
of 2001;

(q) Underserved area refers to an area currently served by home power
systems, microgrids, or DUs whose electricity services are less than
twenty-four (24) hours daily because of non-implementation of applied
capital expense projects, non-compliance with the service parameters of
the Philippine Distribution Code, or any other reason, resulting to an

overall failing mark based on the latest annual technical evaluation of


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performance of distribution systems in relation to ERC’s imposed
targets; and

(t) Unserved area refers to an area with no electricity access, no
distribution system lines, no home power systems, or no connection to

any microgrid.

Section 5. Microgrid Systems in Unserved or Underserved Areas. —
Microgrid systems shall be installed in unserved or underserved areas by
accredited MSPs after the conduct of a competitive selection process in
accordance with Sections 6 and 7 of this Act: Provided, That the installation
shall not require a waiver from the concerned DU and shall not revoke the DU’s
franchise over the said area: Provided further, That the installation of grid tied
MSPs shall be within the annual penetration limit determined by the ERC in
accordance with Section 6 of this Act: Provided finally, That the permitting
process of all MSPs shall comply with the time frames specified in this Act and
with the provisions of Republic Act No. 11234, otherwise known as the Energy
Virtual One Stop Shop Act.

Accredited MSPs that operate in NPC-SPUG areas as NPPs, or remote or
unviable areas as QTPs shall be subsidized through the universal charge for
missionary electrification. Accredited MSPs that operate in unserved or
underserved areas which are not NPC-SPUG areas or remote or unviable areas
shall be unsubsidized.

All rates charged by accredited MSPs, whether subsidized or unsubsidized,
shall be equal to or lower than the applicable benchmark rate as determined by
ERC in accordance with Section 6 of this Act: Provided, That transmission,
distribution, wheeling, and universal charges imposed on end users, whenever

applicable, shall continue to be regulated by the ERC.

Section 6. Duties and Functions of the Energy Regulatory Commission. —
In addition to its functions under the Electric Power Industry Reform Act of
2001, the ERC shall:
(a) Develop, establish, and promulgate the following within six (6) months
from the effectivity of this Act, in consultation with the DOE, the National
‘Transmission Corporation, the transmission concessionaire, the National

Electrification Administration, the National Power Corporation, and other


relevant government agencies and private stakeholders in the electric

power industry:

i. Parameters for the determination of the annual penetration limit
and each DU’s annual penetration limit: Provided, That DUs shall
be necessary parties in the determination of their respective
annual penetration limits. The ERC shall conduct a regular review
of these parameters, and shall release all the annual penetration
limits not later than December 15 of each preceding year;

ii, Technical and service standards for microgrid systems, whether
grid tied or on island mode both for operations in unserved and
underserved areas: Provided, That these standards shall be
compliant with the Philippine Distribution Code, Philippine Grid
Code, and other relevant rules and regulations;

iii. Rules for grid tied microgrid systems to buy and sell from the grid,
whenever applicable: Provided, That this shall not result to
increased retail rates for other end users, or compromise grid
stability; and

iv. An accreditation mechanism for MSPs: Provided, That such
procedure shall be no longer than thirty (30) calendar days:
Provided further, That the list of accredited MSPs shall be updated,
published, and posted on the ERC and DOE websites no later than
January 15 of every year.

(b) Monitor the operations of all awarded MSPs: Provided, That the ERC,
upon complaint or motu proprio, can conduct a review of an awarded
MSP’s operations should it find reasonable grounds for non-compliance
with the benchmark rate and other provisions of the standardized
contract;

(c) Exercise its rate making power through the determination of benchmark
rates for different microgrid systems and standardized contracts based
on technology, capacity, and other considerations: Provided, That the list
of benchmark rates shall be updated, published, and posted on the ERC
and DOE websites not later than December 15 of each preceding year;
and

(d) Monitor all awarded MSP contracts: Provided, That ERC, upon complaint
or motu proprio, can conduct a review of awarded MSP contracts and

their operations should it find reasonable grounds for non-compliance


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with the benchmark rate and other provisions of the standardized

contract.

Section 7. Duties and Functions of the Department of Energy. — In
addition to its functions under Republic Act No. 7638 otherwise known as the
Department of Energy Act of 1992, the DOE shall:

(a) Release and update a list of unserved and underserved areas as well as
NPC-SPUG areas and remote or unviable areas: Provided, That the list
shall be updated, published, and posted on the ERC and DOE websites
not later than January 15 of each preceding year;

(b) Create an annual schedule of competitive selection process based on the
list of unserved and underserved areas: Provided, That the schedule shall
be published and posted on the ERC and DOE websites not later than
January 15 of the current year;

() Establish and conduct a simple, uniform, and streamlined process for
competitive selection of MSPs, whether subsidized or unsubsidized
Provided, That the entire procedure from commencement to submission
to the ERC of the awarded contract shall be no longer than ninety (90)
calendar days: Provided further, That information on interested MSPs and
their respective proposed systems and rates shall be made available to
end users in the concerned area within five (5) days from the MSP’s
submission of the intent to participate: and

(d) Determine a detailed procedure for the transition of electricity service
from DUs to awarded MSPs in underserved areas: Provided, That such
transition shall not exceed three (3) months from the award of the
contract through no fault of the awarded MSP.

SECTION 8. Microgrid Systems of Electric Power Industry Participants. ~
Generation companies, DUs, retail electricity suppliers, or their respective
subsidiaries or affiliates may engage in the business of MSPs in unserved and
underserved areas: Provided, That a separate account is maintained for such

business undertaking.

SECTION 9. Effect of Grid Extension. ~ In the event that the grid is extended
to previously unserved, NPP, or QTP areas, the DU shall have the option to
acquire the distribution system of the MSP upon the expiration of the MSP

contract, subject to the approval of the ERC.


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SECTION 11. Prohibited Acts. ~ Any person, natural or juridical, is prohibited
from the following acts:

(a) Refusal to allow the installation of any microgrid system: Provided, That
the requirements under Sections 5, 6, and 7 of this Act are complied
with;

(b) Imposition of new charges and contractual terms on the end user which
are not part of the benchmark rate and awarded MSP contract;

(0) Refusal to allow a DU to acquire an MSP distribution system: Provided,
That the DU has a franchise over the area and the acquisition is in
accordance with Section 9 of this Act; and

(d) Failure to comply with the duties, obligations, and time frames specified

in Sections 6 and 7 of this Act.

SECTION 12. Penalties. ‘The responsible officers and employees of any
establishment or organization, whether public or private, who commits the
following prohibited acts of this Act shall, upon conviction, suffer the following
penalties:

(a) Violation of Section 11 (a) — Imprisonment of six (6) years to eight (8)
years, or a fine ranging from a minimum of Seventy five million pesos
(P75,000,000.00) to One hundred million pesos (P100,000,000.00), upon
the discretion of the court;

(b) Violation of Section 11 (b) - Imprisonment of four (4) years to six (6)
years, or a fine ranging from a minimum of Fifty million pesos
(P50,000,000.00) to Seventy five million pesos (P75,000,000.00), upon
the discretion of the court; and

(c) Violation of Section 11 (c) - Imprisonment of two (2) years to four (4)
years, or a fine ranging from a minimum of Twenty five million pesos
(P25,000,000.00) to Fifty million pesos (P50,000,000.00), upon the
discretion of the court.

Any person who willfully aids or abets the commission of these prohibited acts
or who causes the commission of any such act by another shall be liable in the
same manner as the principal. In cases of an association, partnership, or
corporation, the penalty shall be imposed on the member, partner, president,
chief operating officer, chief executive officer, director, or officer responsible for

the violation.


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Any person found guilty of violating Section 11 (d) of this Act shall be penalized
as follows:
(a) First offense — Thirty (30) days suspension without pay and mandatory
attendance in Values Orientation Program;
(b) Second offense ~ Three (3) months suspension without pay; and
(c) Third offense —~ Dismissal and perpetual disqualification from public

service, and forfeiture of retirement benefits.

SECTION 13. Congressional Oversight. — The Joint Congressional Power
Commission shall exercise oversight powers over implementation of this Act.
The DOE and ERC shall submit annually to the Joint Congressional Power
Commission a thorough report on the implementation of this Act not later than
15 March of every year: Provided, That the report shall include identification of

legislative gaps, if any, and recommended ways forward.

SECTION 14. Implementing Rules and Regulations. - The DOE, in
consultation with the appropriate government agencies mentioned herein and
electric power industry stakeholders, shall issue the implementing rules and

regulations of this Act within sixty (60) working days upon its effectivity.

SECTION 15. Amendatory Clause. - This Act amends Section 43 of the
Electric Power Industry Reform Act of 2001 insofar as the rights, obligations,

and powers of the ERC are concerned.

SECTION 16. Separability Clause. ~ Any portion or provision of this Act,
which may be declared unconstitutional or invalid shall not have the effect of

nullifying other portions or provisions hereof.
SECTION 17. Repealing Clauses. ~ All laws, ordinances, rules, regulations
and other issuance or parts thereof, which are inconsistent with this Act, are

hereby amended, modified, or repealed accordingly.

SECTION 18. Effectivity Clause. - This Act shall take effect fifteen (15) days

after its publication in at least two (2) newspaper of general circulation.

Approved,