ELECTRIC POWER INDUSTRY REFORM ACT OF 2001

Case Overview and Summary

Summary of the Electric Power Industry Reform Act of 2001

Objectives and Policies (Sections 1-4)
- Ensure total electrification, reliable and affordable electricity supply, transparent pricing, private sector participation, fair competition, consumer protection, indigenous energy sources, and privatization of National Power Corporation (NPC) assets.
- Restructures the electric power industry into four sectors: generation, transmission, distribution, and supply.

Generation Sector (Sections 5-6)
- Generation is competitive and open; no franchise required.
- Generation companies are not considered public utilities.
- Generation rates are not regulated by the Energy Regulatory Commission (ERC), except for market power abuse.
- Generation companies' sales are value-added tax zero-rated.

Transmission Sector (Sections 7-22)
- Transmission is a regulated common electricity carrier business.
- Creates the National Transmission Corporation (TRANSCO) to assume NPC's transmission functions.
- TRANSCO is wholly owned by the Power Sector Assets and Liabilities Management Corporation (PSALM Corp.).
- TRANSCO shall provide open and non-discriminatory access to its transmission system.
- TRANSCO shall award a concession contract for the operation and maintenance of its transmission assets.

Distribution Sector (Sections 23-27)
- Distribution is a regulated common carrier business requiring a franchise.
- Distribution utilities shall provide open and non-discriminatory access to their distribution systems.
- Distribution utilities shall supply electricity to their captive markets at regulated rates.
- Distribution utilities may pursue joint actions for efficiency and compliance with performance standards.
- Franchising power for transmission and distribution is vested exclusively in Congress.
- Shareholding limits and dispersal requirements are imposed to prevent monopolies.

Supply Sector (Sections 28-30)
- Supply to the contestable market requires an ERC license, except for distribution utilities in their franchise areas.
- Supply is not considered a public utility operation; no franchise required.
- Supply rates are not regulated by the ERC.
- Establishes a wholesale electricity spot market within one year.

Retail Competition and Open Access (Section 31)
- Retail competition and open access on distribution wires shall be implemented within three years, subject to conditions.
- Initial threshold levels for contestable markets are set.

NPC Stranded Debt and Contract Cost Recovery (Sections 32-34)
- Defines NPC's stranded debt and contract costs.
- The national government shall assume a portion of NPC's financial obligations up to ₱200 billion.
- ERC shall determine the recovery of stranded debt and contract costs through a universal charge.
- Universal charge shall also cover missionary electrification, tax equalization for indigenous energy sources, environmental charge, and cross-subsidies.

Regulation of the Electric Power Industry (Sections 38-46)
- Creates the Energy Regulatory Commission (ERC) as an independent, quasi-judicial regulatory body.
- ERC's functions include enforcing the law, setting performance standards, approving rates, preventing market power abuse, and imposing fines and penalties.
- ERC shall promote competition, market development, and consumer protection.
- Fines and penalties range from ₱50,000 to ₱50 million.

Privatization of NPC Assets (Sections 47-56)
- NPC's generating assets, real estate, and IPP contracts shall be privatized within specified timelines.
- Creates the PSALM Corp. to manage the privatization and liquidation of NPC's assets and liabilities.
- Specifies guidelines for grouping and selling NPC's assets through public bidding.
- Agus and Pulangui complexes in Mindanao are excluded from initial privatization.

Promotion of Rural Electrification (Sections 57-60)
- Electric cooperatives may convert into stock cooperatives or corporations.
- Expands the mandate of the National Electrification Administration (NEA) to prepare electric cooperatives for deregulation.
- Outstanding financial obligations of electric cooperatives to NEA and other government agencies shall be assumed by PSALM Corp.

General Provisions (Sections 61-80)
- Establishes the Joint Congressional Power Commission to monitor and ensure proper implementation of the law.
- Provides for separation benefits of affected NPC employees.
- Mandates a rate reduction of ₱0.30/kWh for residential end-users.
- Requires a lifeline rate for marginalized end-users.
- Cross-subsidies shall be phased out within three years, with possible extension of one year.
- Provides for education and protection of end-users.
- Repeals or modifies inconsistent laws and regulations.
- Effectivity clause.