Chapter 1

Definition of Policy

Section 2. Declaration of Policy.

The State shall:

  • ensure and accelerate the total electrification of the country
  • ensure the quality, reliability, security and affordability of the supply of electric power
  • ensure transparent and reasonable prices of electricity in a regime of free and fair competition and full public accountability to achieve greater efficiency and enhance the competitiveness of Philippine products in the global market
  • enhance the inflow of private capital and broaden the ownership base of the power generation, transmission and distribution
  • ensure fair and non-discriminatory treatment of public and private sector entities
  • protect the public interest as it is affected by the rates and services of electric utilities
  • assure socially and environmentally compatible energy sources and infrastructure
  • promote the utilization of indigenous and renewable energy
  • provide for an orderly and transparent privatization of NAPOCOR
  • establish a strong, independent regulatory system to ensure consumer protection and competition in the electricity market
  • encourage the efficient use of energy through demand-side management.

Section 3. Scope

This Act restructures the electric power industry, including:

  • the privatization of the assets of NAPOCOR
  • the transition to a competitive structure,
  • the definition of the responsibilities of the various government agencies and private entities.

Section 4. Definitions

  • “Aggregator” is a person or entity that consolidates electric power demand of end-users in the contestable market, for purchasing and reselling electricity on a group basis
  • “Ancillary Services” support the transmission of energy from resources to loads while maintaining reliable operation of the transmission system in accordance with good utility practice and the Grid code
  • “Captive Market” are the end-users who do not have the choice of electricity supplier, as determined by the ERC
  • “Central Dispatch” is the direct instruction to electric power industry participants by the grid operator to achieve the economic operation and maintenance of the transmission system
  • “Co-Generation Facility” produces energy for industrial commercial heating or cooling
  • “Commission” refers to the ERC
  • “Concession Contract” is the award by the government to a qualified private entity of the responsibility for financing, operating, expanding, maintaining and managing specific Government-owned assets
  • “Contestable Market” is the electricity end-users who have a choice of a supplier of electricity, as determined by the ERC
  • “Customer Service Charge” is the fee for meter reading, billing administration and collection;
  • “Demand Side Management” are done by the DU to encourage end-users to properly manage their load
  • “Distribution Code” are the rules governing electric utilities in the operation and maintenance of their distribution systems which includes:
    • the standards for service and performance
    • establishing the relationship of the distribution systems with the facilities or installations of the parties connected
  • “Distribution of Electricity” refers to the conveyance of electric power by a distribution utility through its distribution system
  • “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 or subtransmission system or generator connection and the point of connection to the premises of the end-user
  • “Distribution Wheeling Charge” refers to the cost or charge regulated by the ERC for the use of a distribution system and/or the availment of related services
  • “Distribution Utility” DU is any electric cooperative, private corporation, government-owned utility or existing local government unit which has an exclusive franchise to operate a distribution system
  • “Electric cooperative” refers to a distribution utility organized pursuant to Presidential Decree No. 269, as amended, or as otherwise provided in this Act
  • “Electric Power Industry Participant” refers to any person or entity engaged in the generation, transmission, distribution or supply of electricity
  • “End-user” refers to any person or entity requiring the supply and delivery of electricity for its own use
  • “Energy Regulatory Board” or “ERB” refers to the independent, quasi-judicial regulatory body created under Executive Order No. 172, as amended
  • “Energy Regulatory Commission” or “ERC” refers to the regulatory agency created herein
  • “Franchise Area” refers to a geographical area exclusively assigned or granted to a distribution utility for distribution of electricity
  • “Generation Company” refers to any person or entity authorized by the ERC to operate facilities used in the generation of electricity
  • “Generation of Electricity” refers to the production of electricity by a generation company or a co-generation facility pursuant to the provisions of this Act
  • “Grid” refers to the high voltage backbone system of interconnected transmission lines, substations and related facilities
  • “Grid Code” refers to the set of rules and regulations governing the safe and reliable operation, maintenance and development of the high voltage backbone transmission system and its related facilities
  • “Independent Power Producer” or “IPP” refers to an existing power generating entity which is not owned by Napocor
  • “Inter-Class Cross Subsidy” refers to an amount charged by distribution utilities to industrial and commercial end-users as well as to other subsidizing customer sectors in order to reduce electricity rates of other customer sectors such as the residential end-users, hospitals, and streetlights
  • “Inter-Regional Grid Cross Subsidy” refers to an amount embedded in the electricity rates of Napocor charged to its customers located in a viable regional grid in order to reduce the electricity rates in a less viable regional grid
  • “Intra- Regional Grid Cross Subsidy” refers to an amount embedded in the electricity rates of Napocor charged to distribution utilities and non-utilities with higher load factor and/or delivery voltage in order to reduce the electricity rates charged to distribution utilities with lower load factor and/or delivery voltage located in the same regional grid
  • “IPP Administrator” refers to qualified independent entities appointed by PSALM who shall administer, conserve and manage the contracted energy output of NAPOCOR IPP contracts
  • “Isolated Distribution System” refers to the backbone system of wires and associated facilities not directly connected to the national transmission system
  • “Lifeline Rate” refers to the subsidized rate given to low-income captive market end-users who cannot afford to pay at full cost
  • “National Electrification Administration “ or “NEA” refers to the government agency created under Presidential Decree No. 269
  • “TRANSCO” refers to the corporation organized pursuant to this Act to acquire all the transmission assets of the NAPOCOR
  • “Open Access” refers to the system of allowing any qualified person the use of transmission, and/or distribution system, and associated facilities subject to the payment of transmission and/or distribution retail wheeling rates duly approved by the ERC
  • “Philippine Energy Plan” or “PEP” refers to the overall energy program formulated and updated yearly by the DOE and submitted to Congress pursuant to RA 7638
  • “Power Development Program” or “PDP” refers to the indicative plan for managing electricity demand through energy-efficient programs and for the upgrading, expansion, rehabilitation, repair and maintenance of power generation and transmission facilities, formulated and updated yearly by the DOE in coordination with the generation, transmission and distribution utility companies
  • “Power Sector Assets and Liabilities Management Corporation” or “PSALM Corp.” refers to the corporation created pursuant to Section 49 hereof;
  • “Privatization” refers to the sale, disposition, change and transfer of ownership and control of assets and IPP contracts from the Government or a government corporation to a private person or entity
  • “Renewable Energy Resources” refers to energy resources that do not have an upper limit on the total quantity to be used. Such resources are renewable on a regular basis and the renewable rate is rapid enough to consider availability over an indefinite time. These include, among others, biomass, solar, wind, hydro and ocean energy
  • “Restructuring” refers to the process of reorganizing the electric power industry in order to introduce higher efficiency, greater innovation and end-user choice. It shall be understood as covering a range of alternatives enhancing exposure of the industry to competitive market forces;(ss) “Retail Rate” refers to the total price paid by end-users consisting of the charges for generation, transmission and related ancillary services, distribution, supply and other related charges for electric service
  • “Small Power Utilities Group” or “SPUG” refers to the functional unit of NAPOCOR created to pursue missionary electrification function
  • “Stranded contract costs of NAPOCOR or distribution utility” refer to the excess of the contracted cost of electricity under eligible contracts over the actual selling price of the contracted energy output of such contracts in the market. Such contracts shall have been approved by the ERB as of December 31, 2000;
  • “Stranded Debts of NAPOCOR” refer to any unpaid financial obligations of NAPOCOR which have not been liquidated by the proceeds from the sales and privatization of NAPOCOR assets;
  • “Subtransmission Assets” refer to the facilities related to the power delivery service below the transmission voltages and based on the functional assignment of assets including, but not limited to step-down transformers used solely by load customers, associated switchyard/substation, control and protective equipment, reactive compensation equipment to improve customer power factor, overhead lines, and the land such facilities/ equipment are located. These include NAPOCOR assets linking the transmission system and the distribution system which are neither classified as generation nor transmission
  • “Supplier” refers to any person or entity authorized by the ERC to sell, broker, market or aggregate electricity to the end-users
  • “Supplier’s Charge” refers to the charge imposed by electricity suppliers for the sale of electricity to end-users, excluding the charges for generation, transmission and distribution wheeling
  • “Supply of Electricity” means the sale of electricity by a party other than a generator or a distributor in the franchise area of a distribution utility using the wires of the distribution utility concerned
  • “Transmission Charge” is the regulated cost or charges for the use of a transmission system which may include the availment of ancillary services
  • “Transmission Development Plan” or “TDP” refers to the program for managing the transmission system through efficient planning for the expansion, upgrading, rehabilitation, repair and maintenance, to be formulated by DOE and implemented by the TRANSCO
  • “Transmission of Electricity” refers to the conveyance of electricity through the high voltage backbone system
  • “Universal Charge” is imposed for the recovery of the stranded cost and other costs in Section 34


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