Republic of the Philippines

DEPARTMENT OF ENERGY
(Kagawaran ng Enerhiya)

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DEPARTMENT CIRCULAR NO. __
I

MANDATING THE NATIONAL TRANSMISSION CORPORATION AS SMALL GRID

SYSTEM OPERATOR IN SPECIFIC OFF-GRID AREAS

WHEREAS, Section 5(d) of Republic Act No. 7638 or the "Department of Energy
Act of 1992" declares that the Department of Energy (DOE) has the powers and functions
to supervise and control over all the government activities relative to energy projects in
order to attain the goals embodied in this Act;

WHEREAS, Section 2 of Republic Act No. 9136, otherwise known as the "Electric
Power Industry Reform Act of 2001" (EPI RA), declares the policy of the State to: (i) ensure
and accelerate the total electrification of the country; (ii) ensure the quality, reliability,
security, and affordability of the supply of electric power; (iii) enhance the inflow of private
capital and broaden the ownership base of the power generation, transmission and
distribution sectors; and (iv) encourage the efficient use of energy and other modalities of
demand-side management;

WHEREAS, Section 8 of the EPIRA created the National Transmission

Corporation (TRANSCO), which shall assume the electrical transmission function of the
National Power Corporation (NPC) and shall have the powers and functions hereinafter
granted. The TRANSCO shall assume the authority and responsibility of the NPC for the
planning, construction and centralized operation and maintenance of its high voltage
transmission facilities, including grid interconnections and ancillary services;

WHEREAS, Rule 6, Section 7(a) of the EPIRA Implementing Rules and Regulation
(IRR) states that the TRANSCO or its Buyer or Concessionaire shall act as the system
operator of the nationwide electrical transmission and sub-transmission system,
transferred to it by NPC;

WHEREAS, on 25 January 2019, the DOE issued Department Circular No.

DC2019-01-0001, entitled "Prescribing the Omnibus Guidelines on Enhancing Off-grid
Power Development and Operation", which prescribes an omnibus set of guidelines that
incorporates and interrelates all existing and new policies and strategies for achieving
quality, reliability, affordability, security, stability, efficiency and accountability of electric
power services in off-grid areas;

WHEREAS, Rule 7 .1.2 of Department Circular No. DC2019-01-0001 provides that

in a Small Grid with one distribution entity and one generator, the distribution entity shall
be the default System Operator (SO). Otherwise, a competent third party SO shall be
engaged;

WHEREAS, there is a need to fast-track the upgrading of the faciiities and

operation of power systems in the off-grid areas, including system operation and
MANDATING THE NATIONAL TRANSMISSION CORPORATION AS SMALL GRID SYSTEM OPERATOR
IN SPECIFIC OFF-GRIDS AREAS
Page 1 of 9
management in order to ensure the efficient dispatch of power for the purposes of
improving reliability and reducing the cost of electricity and subsidies;

WHEREAS, the DOE conducted Public Consultations1 and Focused Group

Discussions2 with various stake holders.

NOW, THEREFORE, FOR AND IN CONSIDERATION OF THE FOREGOING

PREMISES, the DOE hereby designates the TRANSCO as the Small Grid SO in specific
off-grid areas in accordance with the following guidelines:

RULE1.PURPOSE

1.1. The specific purpose of these Guidelines shall be:

1.1.1. To ensure stable operation and control and optimal dispatch of power
supply in small grids and other off-grid power systems towards
attaining adequate, reliable, secure, quality, and efficient electricity
supply and services to end-users and reducing the cost of such supply
and services;

1.1.2. To promote appropriate investments, new capabilities and advanced

technologies towards enhancing the performance of the system
operation in small grids and other off-grid power systems;

1.1.3. To formulate grid interconnection development plans and program for

the off-grid areas and prepare the Distribution Utilities (DUs) and
Generation Companies (GenCos) for the assumption of the
TRANSCO as Small Grid SO and the eventual interconnection of the
small grids to the Grid of Luzon, Visayas and Mindanao as defined in
the latest Island Interconnection Development Plan (IIDP) of the
concerned DUs which will be incorporated to their Distribution
Development Plan (DDP); and

1.1.4. To harmonize and clarify the operationalization of policies of the DOE

and the regulatory guidelines of the Energy Regulatory Commission
(ERG) in relation to system operation and other aspects of
management of the small grids and off-grid power systems;

RULE 2. DEFINITION OF TERMS

2.1. "Ancillary Service" refers to services that are necessary to support the
transmission of capacity and energy from resources to loads while maintaining
reliable operation of the transmission system in accordance with good utility
practice and the Grid Code;
1
Virtual Public Consultations on 28 - 29 May 2021.
2
Focus Group Discussion on 11 March 2020 with the National Grid Corporation of the Philippines, NPC
and TRANSCO and Follow Through Focus Group Discussion on 28 July 2020 with NPC and TRANSCO.
MANDATING THE NATIONAL TRANSMISSION CORPORATION AS SMALL GRID SYSTEM OPERATOR
IN SPECIFIC OFF-GRIDS AREAS
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2.2. "Department of Energy" or "DOE" refers to the Government agency created by
virtue of Republic Act No. 7638, as amended by the EPIRA, to supervise the
restructuring of the electric power industry;

2.3. "Distribution Development Plan" or "DDP" refers to the program for expansion,
reinforcement and rehabilitation of the distribution system which is prepared by
the DU and submitted to the DOE for integration with the Power Development
Plan and Philippine Energy Plan. In the case of Electric Cooperatives (ECs), such
plans shall be submitted th~ough the National Electrification Administration (NEA)
for review and consolidation. For the purpose of this Department Circular, the
Island Interconnection Development Plan shall form part of the DDP;

2.4. "Dispatch Schedule" refers to the target loading levels in MW or kW for each
scheduled Generating Unit or scheduled loads and for each reserve facility
through the use of a dispatch optimization model;

2.5. "Dispatch Protocol" refers to the specific criteria, method, procedures and
requirements in preparing a Dispatch Schedule to achieve least-cost generation;

2.6. Distribution Utility or "DU" refers to an EC, private corporation, government-

owned utility or existing local government unit which has an exclusive franchise
to operate a Distribution System;

2.7. "Energy Regulatory Commission" or "ERG" refers to the quasi-judicial regulatory

agency created pursuant to the EPIRA;

2.8. "Generating Plant" refers to the facility, consisting of one or more Generating
Units, where electric energy is produced from some other form of energy by
means of a suitable apparatus;

2.9. "Generation Company" refers to any person or entity authorized by the ERG to
operate facilities used in the generation of electricity;

2.10. "Grid" refers to the high voltage backbone system of interconnected transmission
lines substations and related facilities;

2.11. "Grid Owner" refers to the party that owns the backbone High Voltage line (for
Category 1, Category 2) or the Medium Voltage line (for other Categories) and is
responsible for planning, operations and maintaining adequate capacity;

2.12. "High Voltage" refers to a voltage level exceeding 34.5 kV up to 230 kV;

2.13. "Independent System Operator" or "ISO" refers to any private entity duly
accredited by the ERG to perform the functions of the System Operator (SO) in
off-grid areas;
MANDATING THE NATIONAL TRANSMISSION CORPORATION AS SMALL GRID SYSTEM OPERATOR
IN SPECIFIC OFF-GRIDS AREAS
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2.14. "Island Interconnection Development Plan" or "IIDP" refers to the development
plan of a DU detailing the strategies, plans and programs for the preparation and
implementation of the interconnection of the Small Grid into the Grid and will be
form part of their Distribution Development Plan;

2.15. "Low Voltage" refers to a voltage level not exceeding 1,000 volts or 1kV;

2.16. "Medium Voltage" refers to a voltage level exceeding one (1) kV up to 34.5 kV;

2.17. "Missionary Electrification Development Plan" or "MEDP" refers to the

development plan of the DOE, updated annually, detailing the policies, strategies,
plans and programs for missionary electrification, including the capital investment
and operation in off-grid areas;

2.18. "National Electrification Administration" or "NEA" refers to the Government

agency created under Presidential Decree No. 269, as amended, to supervise
the electric cooperatives;

2.19. "National Power Corporation" or "NPC" refers to the government corporation

created under Republic Act. No. 6395 and provided an additional mandate by
EPIRA to perform missionary electrification through the Small Power Utilities
Group (SPUG) and shall be responsible for providing power generation and its
associated power delivery systems in areas that are not connected to the Grid;

2.20. "National Transmission Corporation" or "TRANSCO" refers to the corporation

organized pursuant to Republic Act No. 9136 to acquire all transmission assets
of the NPC and provided an additional mandate by this Department Circular to
serve as the Small Grid System Operator for small grids and other off-grid areas;

2.21. "Off-Grid Area" refers to an area or system that is not connected to the Grid;

2.22. "Philippine Small Grid Guidelines" or "PSGG" refers to Resolution No. 15, Series
of 2013 issued by the ERC;

2.23. "Philippine Small Grid Dispatch Protocol" or "PSGDP" refers to Resolution No.
15, Series of 2014 issued by the ERC;

2.24. "Power Supply Agreement" or "PSA" refers to an agreement between a power

producer and a DU for the supply of power;

2.25. "Small Grid" refers to the backbone system of interconnected High Voltage (HV)
lines or Medium Voltage (MV) lines, substations and other related facilities not
connected to the Grid of Luzon, Visayas and Mindanao;

MANDATING THE NATIONAL TRANSMISSION CORPORATION AS SMALL GRID SYSTEM OPERATOR

IN SPECIFIC OFF-GRIDS AREAS
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2.26. "Small Grid Control Center" or "SGCC" refers to the control center that operates
and controls the Small Grid power system;

2.27. "Small Grid System Operator" or "Small Grid SO" refers to the party responsible
for generation dispatch and real-time control of the power system in off-grid areas
through the management of operating reserves, reactive power support, black
start and other operating requirements to ensure safety, power quality, stability,
reliability and security of the Small Grid;

2.28. "Small Grid User" refers to a person or entity that uses the Small Grid and related
facilities;

2.29. "Universal Charge for Missionary Electrification" or "UC-ME" refers to the portion
of the Universal Charge which is designated for Missionary Electrification.

RULE 3. TRANSCO AS SMALL GRID SYSTEM OPERATOR IN SPECIFIC OFF-GRID

AREAS

3.1. Rule 7.1.2 of Department Circular No. 2019-01-0001 is hereby amended such
that the TRANSCO shall serve as the Small Grid SO in any of the following Small
Grid classifications:

7.1.2.1. More than one (1) DU utilizing a High Voltage line to transmit power
generated by more than one (1) Genco;

7.1.2.2. Only one (1) DU utilizing a High Voltage line to transmit power
generated by more than one (1) Genco; and

7.1.2.3. Only one (1) DU utilizing its Medium Voltage line to transmit power
generated by more than one (1) Genco.

3.2. The DU shall remain as the SO in Small Grid with only one (1) DU utilizing its
Medium Voltage line to transmit power generated by only one (1) Gen Co. Any
DU may seek a third party SO (NPC-SPUG or any ISO as may be accredited by
ERC) to perform the function on its behalf following the prescribed procedure as
stated in Rule 7 of Department Circular No. DC2019-01-0001.

3.3. The NPC-SPUG, Qualified Third Party or any entity, as may be determined by
ERC, operating in off-grid areas shall function as Small Grid SO in areas not
covered by the above classifications.

3.4. Pursuant to 7.1.6 of Department Circular No. DC2019-01-0001, upon request of

the DU, the TRANSCO may conduct capacity building system operation activities.

MANDATING THE NATIONAL TRANSMISSION CORPORATION AS SMALL GRID SYSTEM OPERATOR

IN SPECIFIC OFF-GRIDS AREAS
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3.5. The TRANSCO shall submit an annual report on its system operation to the
concerned DU, DOE, ERG, NEA and NPC. The report shall contain the result of
the performance assessment and recommendation of its system operation.

RULE 4. SYSTEM OPERATOR IMPLEMENTATION PLAN

4.1. Within sixty (60) days upon the effectivity of this Department Circular, the
TRANSCO shall submit to the DOE a Small Grid SO Implementation Plan,
including the items enumerated in this section, together with a Capital and
Operating Expenditure Program that defines the timeline of the off-grid areas to
be covered by its Small Grid SO services in the next five (5) years in accordance
with PSGG and PSGDP while taking into consideration the existing PSAs of the
concerned DUs with their respective existing power suppliers towards the safe,
reliable, secured, efficient, and least-cost electricity services:

4.1.1. Development of an area-specific dispatch protocol;

4.1.2. Control strategies and procedures;

4.1.3. Supporting tools for the efficient control and dispatch of power in the
Small Grid;

4.1.4. Basis or criteria for entry in the area as SO in accordance with Rule 3
of this Department Circular; and

4.1.5. List and plan for conveyance or acquisition of the existing facilities
that the TRANSCO will operate from the concerned DU or to be
shared with the DU, NPC-SPUG or ISO, if any.

4.2. The Small Grid SO Implementation Plan together with the Capital and Operating
Expenditure Program shall be updated annually as approved and endorsed by
the TRANSCO Board of Directors for integration to the MEDP not later than
January of the current year.

RULE 5. ADDITIONAL RESPONSIBILITIES OF TRANSCO AS SMALL GRID

SYSTEM OPERATOR IN SPECIFIC OFF-GRID AREAS

In connection to its function as SO and upon request of the DU, the TRANSCO may also
engage in the following collaboration activities:

5.1. Assist the concerned DU and other stakeholders in the conduct of analytical
studies in the formulation of their optimal power development plan which will be
an integral part of the DDP, including the Power Supply Procurement Plan
(PSPP) and in the preparation of their individual Universal Charge for Missionary
Electrification (UC-ME) subsidy rationalization and graduation plan which shall
include:

MANDATING THE NATIONAL TRANSMISSION CORPORATION AS SMALL GRID SYSTEM OPERATOR

IN SPECIFIC OFF-GRIDS AREAS
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 5.1.1. Optimal generation expansion planning, which specifies the least-
cost capacity addition, technologies, location and timing that meets
the reliability performance standards prescribed by the PSGG and
PSGDP;

5.1.2. Optimal development of the backbone network considering the

optimal generation expansion plan, DDP of the DUs, and eventual
interconnection of the Small Grid to the Grid of Luzon, Visayas and
Mindanao; and

5.1.3. IIDP, in coordination with its Buyer or Concessionaire or any

successor-in-interest.

5.2. Provide useful information in verifying the UC-ME subsidy claims for the eligible
electricity generated and delivered by the power plants of New Power Providers
(NPPs), concerned DU and other suppliers as may be needed by the NPC as the
UC-ME petitioner.

5.3. For all Small Grid interconnection projects:

5.3.1. Formulate a readiness program and prepare the Small Grid and its
stakeholders for the eventual interconnection of the off-grid area to
the Grid through technical advisory and capacity building of the
concerned DU in upgrading its protection system, communication,
and automation of distribution monitoring, as well as the eventual
adoption of new procedures that are compliant or consistent with the
rules, practices and protocols in the Grid;

5.3.2. Provide updates to the DOE, ERG, DU and other stakeholders on

the schedules of the planning activities and actual implementation of
the interconnection projects to the Grid;

5.3.3. Advise the DU and the concerned NPPs in the review and
amendment of existing PSAs that will be affected by the
interconnection for purposes of reducing the cost of potential
stranded contracts; and

5.3.4. Determine the possibility of utilizing for ancillary service the efficient
and least-cost power plants of NPPs as well as other available
energy resources, that will be affected by the interconnection of the
Small Grid to the Grid.

RULE 6. OPERATIONALIZATION

6.1. In accordance with its Small Grid SO Implementation Plan as defined in Rule 4
of this Department Circular, the TRANSCO shall initiate and coordinate with the
concerned off-grid DU for the expedient assumption of the SO functions.
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IN SPECIFIC OFF-GRIDS AREAS
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6.2. The concerned DU, NPC-SPUG or ISO shall provide the necessary assistance
to TRANSCO to ensure the smooth transfer of the SO function.

6.3. The system operation in the Small Grid shall be fully guided by the
responsibilities, technical standards, procedures and protocols as defined under
the PSGG and the PSGDP.

6.4. For Small Grid with High Voltage facilities, the TRANSCO shall enter into an
agreement with the transmission asset owner and/or the existing SO regarding
the operation, maintenance, improvements and/or ownership of transmission and
substation facilities in the performance of the Small Grid SO function.

6.5. For Small Grid with Medium Voltage facilities, the TRANSCO shall enter into an
agreement with the DU for the DU-owned distribution and substation facilities in
the performance of the Small Grid SO function.

6.6. The TRANSCO shall establish a Small Grid Control Center and develop tools for
system operation to effectively carry out its function as Small Grid SO in assigned
off-grid areas under this Department Circular.

6.7. The TRANSCO shall establish a SO Technical Committee, consisting of the SO

manager as head and representatives from the concerned DU, NEA, NPC and
other users of the Small Grid as members, to formulate specific rules or standards
in the governance of all activities of system operation as stated in the PSGG and
PSGDP. The Committee shall adopt its own business rules to undertake its
responsibilities.

RULE 7. CAPACITY BUILDING FOR SYSTEM OPERATORS IN SMALL GRID AND

OTHER OFF-GRID AREAS

Pursuant to Rule 7 .1.6 of Department Circular No. DC2019-01-0001, upon request of the
DU, the TRANSCO may conduct capacity building activities such as trainings, workshops,
and other advisory services in enhancing the capabilities of a DU to perform its SO
functions in the Small Grid.

RULE 8. REGULATORY SUPPORT

Within one hundred twenty (120) days upon the effectivity of this Department Circular, the
ERC shall develop rules and procedures to provide the necessary support for the
implementation of this Department Circular.

RULE 9. TRANSITORY PROVISIONS

9.1. Within thirty (30) days upon the effectivity of this Department Circular, the default
SO, NPC-SPUG or ISO will prepare and submit its phase-out plan to the
TRANSCO.

MANDATING THE NATIONAL TRANSMISSION CORPORATION AS SMALL GRID SYSTEM OPERATOR

IN SPECIFIC OF:f-GRIDS AREAS
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9.2. Upon receipt of the phase-out plan, TRANSCO will prepare and submit to the DOE,
copy furnished the NEA, NPC and concerned DUs, its priority list of the small grids
to be covered by its SO services

9.3. The default SO shall continue to function as the SO in an off-grid area until the
assumption of the TRANSCO or any third-party SO, as the case may be.

9.4. Upon application with the ERC of the interconnection project, the existing SO shall
prepare and submit its phase-out plan and continue to function as the SO in the
off-grid area until assumption of the Transmission System Operator of the Grid,
subject to submission of a revised phase-out plan to reflect necessary
adjustments, amendments, or any modifications.

RULE 10. REPEALING CLAUSE

10.1 Any Department Circular or issuance, contrary or inconsistent with the provisions
of this Department Circular is hereby repealed, modified or amended accordingly.

10.2 Provisions of-DC2019-12-0018 not affected by this Circular shall remain in effect.

RULE 11. SEPARABILITY CLAUSE

If for any reason, any provision of this Department Circular is declared unconstitutional or
invalid, the other parts of provisions hereof which are not affected thereby shall continue
to be in full force and effect.

RULE 12. EFFECTIVITY

This Department Circular shall take effect fifteen (15) days after its publication in at least
two (2) newspapers of general circulation. Copies of this Department Circular shall be
filed with the University of the Philippines Law Center - Office of the National
Administrative Register (UPLC-ONAR).

This Department Circular shall remain in effect until otherwise revoked.

Issued on __N_O_V_0_9_2_0_2_1_ at Energy Center, Bonifacio Global City, Taguig City.

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Republic or the Philippines

DEPARTMENT OF ENERGY
IN REPLYING PLS, CITE:

DOE-AGC-21006449
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MANDATING THE NATIONAL TRANSMISSION CORPORATION AS SMALL GRID SYSTEM OPERATOR

IN SPECIFIC OFF-GRIDS AREAS
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