R.A.

9136
AN ACT ORDAINING REFORMS
IN THE ELECTRIC POWER
INDUSTRY, AMENDING FOR
THE PURPOSE CERTAIN LAWS
AND FOR OTHER PURPOSES
 CHAPTER I

TITLE AND DECLARATION OF

POLICY
SECTION 1 Short Title

This Act shall be known as the “Electric Power Industry

Reform Act of 2001”. It shall hereinafter be referred to as
the Act.
SECTION 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;
SECTION 2 Declaration of Policy.

(c) To ensure transparent and reasonable prices of electricity in

a regime of free and fair competition and full public
accountability to achieve greater operational and economic
efficiency and enhance the competitiveness of Philippine
products in the global market;
SECTION 2 Declaration of Policy.
(d) To enhance the inflow of private capital and broaden the
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;
SECTION 2 Declaration of Policy.
(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;
SECTION 2 Declaration of Policy.
(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);
SECTION 2 Declaration of Policy.
(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.
 CHAPTER II

ORGANIZATION AND
OPERATION OF THE ELECTRIC
POWER INDUSTRY
SECTION 5 Organization.

The electric power industry shall be divided into four (4)

sectors, namely: generation, transmission, distribution
and supply.
SECTION 6 Generation Sector.
Generation of electric power, a
business affected with public interest,
shall be competitive and open.
SECTION 6 Generation Sector.
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, as
well as health, safety and
environmental clearances from the
appropriate government agencies
under existing laws.
SECTION 6 Generation Sector.
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.
SECTION 6 Generation Sector.
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.
SECTION 6 Generation Sector.
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.
SECTION 6 Generation Sector.
The ERC shall, in determining the
existence of market power abuse or
anti-competitive behavior, require from
generation companies the submission
of their financial statements.
SECTION 7 Transmission Sector.
The transmission of electric power
shall be regulated common electricity
carries business, subject to the
ratemaking powers of the ERC.
SECTION 7 Transmission Sector.
The ERC shall set the standards of the voltage
transmission that shall distinguish the transmission from
the subtransmission assets. Pending the issuance of such
new standards, the distinction between the transmission
and subtransmission assets shall be as follows: 230
kilovolts and above in the Luzon grid, 69 kilovolts and
above in the Visayas and in the isolated distribution
systems, and 138 kilovolts and above in the Mindanao
Grid: Provided, That for the Visayas and the isolated
distribution system, should the 69 kilovolt line not form
part of the main transmission grid and be directly
connected to the substation of the distribution utility, it
shall form part of the subtransmission system.
SECTION 22 Distribution Sector.

The distribution of electricity to end-users shall be a

regulated common carrier business requiring a
national franchise. Distribution of electric power to all
end-users may be undertaken by private distribution
utilities, cooperatives, local government units
presently undertaking this function and other duly
authorized entities, subject to regulation by the ERC.
SECTION 23 Functions of
Distribution Utilities.
A distribution utility shall have the obligation to
provide distribution services and connections to its
system for any end-user within its franchise area
consistent with the distribution code. Any entity
engaged therein shall provide open and non-
discriminatory access to its distribution system to all
users.
SECTION 23 Functions of
Distribution Utilities.
Any distribution utility shall be entitled to impose and
collect distribution wheeling charges and connection
fees from such end-users as approved by the ERC.

A distribution utility shall have the obligation to

supply electricity in the least cost manner to its
captive market, subject to the collection of retail rate
duly approved by the ERC.
SECTION 23 Functions of
Distribution Utilities.
To achieve economies of scale in utility operations,
distribution utilities may, after due notice and public
hearing, pursue structural and operational reforms
such as but not limited to, joint actions between or
among the distribution utilities, subject to the
guidelines issued by the ERC. Such joint actions shall
result in improved efficiencies, reliability of service,
reduction of costs and compliance to the
performance standards prescribed in the IRR of this
Act.
SECTION 23 Functions of
Distribution Utilities.
Distribution utilities shall submit to the ERC a statement of their
compliance with the technical specifications prescribed in the
Distribution Code and the performance standards prescribed in
the IRR of this Act. Distribution utilities which do not comply
with any of the prescribed technical specifications and
performance standards shall submit to the ERC a plan to
comply, within three (3) years, with said prescribed technical
specifications and performance standards. The ERC shall, within
sixty (60) days upon receipt of such plan, evaluate the same and
notify the distribution utility concerned of its action. 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.
 SECTION 23 Functions of
Distribution Utilities.
Distribution utilities shall prepare and submit to the
DOE their annual distributions developments plans. In
the case of electric cooperatives, such plans shall be
submitted through the National Electrification
Administration.
SECTION 23 Functions of
Distribution Utilities.
Distribution utilities shall provide universal service within their
franchise, over a reasonable time from the requirement thereof,
including unviable areas, as part of their social obligations, in a
manner that shall sustain the economic viability of the utility,
subject to the approval by the ERC in the case of private or
government-owned utilities. To this end, distribution utilities
shall submit to the DOE their plans for serving such areas as
part of their distribution development plans. Areas which a
franchised distribution utility cannot or does not find viable may
be transferred to another distribution utility, if any is available,
who will provide the service, subject approval by ERC. In cases
where franchise holders fail and/or refuse to service any area
within their franchise territory and allowed another utility to
service the same, then the status quo shall be respected.
SECTION 23 Functions of
Distribution Utilities.
Distribution utilities may exercise the power of
eminent domain subject to the requirements of the
Constitution and existing laws.
 SECTION 29 Supply Sector.
The supply sector is a business affected with public
interest. Except for distribution utilities and electric
cooperatives with respect to their existing franchise
areas, all suppliers of electricity to the contestable
market shall require a license from the ERC.
 SECTION 29 Supply Sector.
For this purpose, the ERC shall promulgate rules and
regulations prescribing the qualifications of
electricity suppliers which shall include, among other
requirements, a demonstration of their technical
capability, financial capability, and
creditworthiness: Provided, That the ERC shall have
authority to require electricity 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.
 SECTION 29 Supply Sector.
Any law to the contrary notwithstanding , supply of
electricity to the contestable market shall not be
considered a public utility operation. For this purpose,
any person or entity which shall engage in the supply
of electricity to the contestable market shall not be
required to secure a national franchise.
 SECTION 29 Supply Sector.
The prices to be charged by suppliers for the supply
of electricity to the contestable market shall not be
subject to regulation by the ERC.

Electricity suppliers shall be subject to the rules and

regulations concerning abuse of market power,
cartelization, and other anti-competitive or
discriminatory behavior to be promulgated by the
ERC.
SECTION 29 Supply Sector.
In its billings to end-users, every supplier shall
identify and segregate the components of its
supplier’s charge, as defined herein.
 SECTION 30 Wholesale Electricity
Spot Market.
Within one (1) year from the effectivity of this Act, the
DOE shall establish a wholesale electricity spot
market composed of the wholesale electricity spot
market participants. The market shall provide the
mechanism for identifying and setting the price of
actual variations from the quantities transacted
under contracts between sellers and purchasers of
electricity.
 SECTION 30 Wholesale Electricity
Spot Market.
Jointly with the electric power industry participants, the
DOE shall formulate the detailed rules for the wholesale
electricity spot market. Said rules shall provide the
mechanism for determining the price of electricity not
covered by bilateral contracts between sellers and
purchasers of electricity users. The price determination
methodology contained in said rules shall be subject to the
approval of ERC. Said rules shall also reflect accepted
economic principles and provide a level playing field to all
electric power industry participants. The rules shall provide,
among others, procedures for:
 SECTION 30 Wholesale Electricity
Spot Market.
(a) Establishing the merit order dispatch instructions for
each time period;

(b) Determining the market-clearing price for each time

period;
 SECTION 30 Wholesale Electricity
Spot Market.
(c) Administering the market, including criteria for
admission to and termination from the market which
includes security or performance bond requirements,
voting rights of the participants, surveillance and
assurance of compliance of the participants with the
rules and the formation of the wholesale electricity spot
market governing body;
 SECTION 30 Wholesale Electricity
Spot Market.
(d) Prescribing guidelines for the market operation in
system emergencies; and

(e) Amending the rules.

 SECTION 30 Wholesale Electricity
Spot Market.
The wholesale electricity spot market shall be implemented by a market
operator in accordance with the wholesale electricity spot market rules.
The market operator shall be an autonomous group, to be constituted
by DOE, with equitable representation from electric power industry
participants, initially under the administrative supervision of the
TRANSCO. The market operator shall undertake the preparatory work
and initial operation of the wholesale electricity spot market. Not later
than one (1) year after the implementation of the wholesale electricity
spot market, an independent entity shall be formed and the functions,
assets and liabilities of the market operator shall be transferred to such
entity with the joint endorsement of the DOE and the electric power
industry participants. Thereafter, the administrative supervision of the
TRANSCO over such entity shall cease.
 SECTION 30 Wholesale Electricity
Spot Market.
Subject to the compliance with the membership criteria, all generating
companies, distribution utilities, suppliers, bulk consumers/end-users
and other similar entities authorized by the ERC shall be eligible to
become members of the wholesale electricity spot market.
 SECTION 30 Wholesale Electricity
Spot Market.
The ERC may authorize other similar entities to become eligible as
members, either directly or indirectly, of the wholesale electricity spot
market. All generating companies, distribution utilities, suppliers, bulk
consumers/end-users and other similar entities authorized by the ERC,
whether direct or indirect members of the wholesale electricity spot
market, shall be bound by the wholesale electricity spot market, shall be
bound by the wholesale electricity spot market rules with respect to
transactions in that market.
 SECTION 30 Wholesale Electricity
Spot Market.
NEA may, in exchange for adequate security and a guarantee fee, act as
a guarantor for purchases of electricity in the wholesale electricity spot
market by any electric cooperative or small distribution utility to support
their credit standing consistent with the provisions hereof. For this
purpose, the authorized capital stock of NEA is hereby increased to
Fifteen billion pesos (P15,000,000,000.00)
 SECTION 30 Wholesale Electricity
Spot Market.
All electric cooperatives which have outstanding uncollected billings to
any local government unit shall report such billings to NEA which shall,
in turn, report the same to the Department of Budget and Management
(DBM) for collection pursuant to Executive Order 190 issued on
December 21, 1999.
 SECTION 30 Wholesale Electricity
Spot Market.
The cost of administering and operating the wholesale electricity spot
market shall be recovered by the market operator through a charge
imposed to all market members: Provided, That such charge shall be
filed with and approved by the ERC.

In cases of national and international security emergencies or natural

calamities, the ERC is hereby empowered to suspend the operation of
the wholesale electricity spot market or declare a temporary wholesale
electricity spot market failure.
CHAPTER III

ROLE OF THE
DEPARTMENT
OF ENERGY
SEC. 37. Powers and Functions of the
DOE.
In addition to its existing powers and functions, the DOE is hereby
mandated to supervise the restructuring of the electricity industry. In
pursuance thereof, Section 5 of RA 7638 otherwise known as “The
Department of Energy Act of 1992” is hereby amended to read as
follows:

(a) Formulate policies for the planning and implementation of a

comprehensive program for the efficient supply and economical use of
energy consistent with the approved national economic plan and with
the policies on environmental protection and conservation and
maintenance of ecological balance, and provide a mechanism for the
integration, rationalization, and coordination of the various energy
programs of the Government;
SEC. 37. Powers and Functions of the
DOE.
(b) Develop and update annually the existing Philippine Energy Plan,
hereinafter referred to as ‘The Plan’, which shall provide for an
integrated and comprehensive exploration, development, utilization,
distribution, and conservation of energy resources, with preferential
bias for environment-friendly, indigenous, and low-cost sources of
energy. The plan shall include a policy direction towards the
privatization of government agencies related to energy, deregulation of
the power and energy industry, and reduction of dependency on oil-fired
plants. Said Plan shall be submitted to Congress not later than the
fifteenth day of September and every year thereafter;
SEC. 37. Powers and Functions of the
DOE.
(c) Prepare and update annually a Power Development Program (PDP)
and integrate the same into the Philippine Energy Plan. The PDP shall
consider and integrate the individual or joint development plans of the
transmission, generation, and distribution sectors of the electric power
industry, which are submitted to the Department: Provide, however, That
the ERC shall have exclusive authority covering the Grid Code and the
pertinent rules and regulations it may issue;
SEC. 37. Powers and Functions of the
DOE.

(d) Ensure the reliability, quality and security of supply of electric power;
 SEC. 37. Powers and Functions of the
DOE.
(e) Following the restructuring of the electricity sector, the DOE shall,
among others:
(i) Encourage private sector investments in the electricity sector
and promote development of indigenous and renewable energy sources;
(ii) Facilitate and encourage reforms in the structure and
operations of distribution utilities for greater efficiency and lower costs;
(iii) In consultation with other government agencies, promote a
system of incentives to encourage industry participants, including new
generating companies and end-users to provide adequate and reliable
electric supply; and
(iv) Undertake in coordination with the ERC, NPC, NEA and the
Philippine Information Agency (PIA), information campaign to educate
the public on the restructuring of the electricity sector and privatization of
NPC assets.
 SEC. 37. Powers and Functions of the
DOE.
(f) Jointly with the electric power industry participants, establish the
wholesale electricity spot market and formulate the detailed rules
governing the operations thereof;

(g) Establish and administer programs for the exploration, transportation,

marketing, distribution, utilization, conservation, stockpiling, and storage
of energy resources of all forms, whether conventional or non-
conventional;
 SEC. 37. Powers and Functions of the
DOE.
(h) Exercise supervision and control over all government activities relative
to energy projects in order to attain the goals embodied in Section 2 of
RA 7638;

(i) Develop policies and procedures and, as appropriate, promote a

system of energy development incentives to enable and encourage
electric power industry participants to provide adequate capacity to meet
demand including, among others, reserve requirements;
 SEC. 37. Powers and Functions of the
DOE.
(j) Monitor private sector activities relative to energy projects in order to
attain the goals of the restructuring , privatization, and modernization of
the electric power sector as provided for under existing
laws: Provided, That the Department shall endeavor to provide for an
environment conducive to free and active private sector participation and
investment in all energy activities;

(k) Assess the requirements of, determine priorities for, provide direction
to, and disseminate information resulting from energy research and
development programs for the optimal development of various forms of
energy production and utilization technologies;
 SEC. 37. Powers and Functions of the
DOE.
(l) Formulate and implement programs, including a system of providing
incentives and penalties, for the judicious and efficient use of energy in
all energy-consuming sectors of the economy;

(m) Formulate and implement a program for the accelerated

development of non-conventional energy systems and the promotion and
commercialization of its applications;
 SEC. 37. Powers and Functions of the
DOE.
(n) Devise ways and means of giving direct benefit to the province, city, or
municipality, especially the community and people affected, and
equitable preferential benefit to the region that hosts the energy resource
and/or the energy-generating facility: Provided, however, That the other
provinces, cities, municipalities, or regions shall not be deprived of their
energy requirements;
 SEC. 37. Powers and Functions of the
DOE.
(o) Encourage private enterprises engaged in energy projects, including
corporations, cooperatives, and similar collective organizations, to
broaden the base of their ownership and thereby encourage the widest
public ownership of energy-oriented corporations;

(p) Formulate such rules and regulations as may be necessary to

implement the objectives of this Act; and

(q) Exercise such other powers as may be necessary or incidental to

attain the objectives of this Act.
END OF THE REPORT
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