Republic of the Philippines ENERGY REGULATORY COMMISSION San Migue! Avenue, Pasig City RESOLUTION NO. __13___, Series of 2006 A RESOLUTION ADOPTING THE GUIDELINES TO GOVERN THE SUBMISSION, EVALUATION, AND APPROVAL OF ELECTRIC CAPITAL PROJECTS WHEREAS, Section 43 (f) of Republic Act No. 9136 (The Electric Power industry Reform Act of 2001 or the EPIRA) provides that any significant operating costs or projects investments of the National Transmission Corporation {TRANSCO) and Distribution Utilities (DUs) which shall become part of the rate base shall be subject to verification by the Commission to ensure that the contracting and procurement of the equipment, assets and services have been subjected to lansparent and accepted industry procurement and purchasing practices to protect the public interest; WHEREAS, the Distribution Services and Open Access Rules (DSOAR) and Section 20 (b) of Commonwealth Act No. 146, as amended, require any public service to establish, construct, maintain, and operate any reasonable extension of its existing facilities, where, in the judgment of the Commission, such extension is reasonable and practicable and will furnish sufficient business to justify the construction and maintenance of the same, and wher the financial condition of the said public service reasonably warrants the original expenditure required in making and operating such extension: WHEREAS, on Aprit 1, 2005, April 27, 2005, and August 18, 2005 the Commission conducted public consultations for the adoption and promulgation of the “Guidelines to Gover the Submission, Evaluation and Approval of Electric Distribution Capital Projects”, WHEREAS, the Guidelines seek to: (1) provide the Distribution Utilities with a uniform system for filing applications for the approval of Capital Projects; {2) ensure that capital projects are in compliance with the Philippine Grid Code and the Philippine Distribution Code; (3) protect the public interest as it is affected by the rates and services of Electric Utilities and other providers of electric power, (4) ensure the economic, orderly and efficient development of Electric Utilities’ resources that concern public interest; and {5} ensure the procurement of equipment, materials and services are transparent and compliant with the applicable !aws and accepted industry practices and standards. NOW THEREFORE, the Commission, after thorough and due deliberation, hereby RESOLVED, as it hereby RESOLVES to APPROVE and ADOPT the set of Guidelines to Govern the Submission, Evaluation and Approval of Electric Distribution Capital Projects herein attached as “ANNEX A" and made an integral part of this Resolution. Se KGResolution No.__13 Series of 2008 A Resolution Adopting the Guidelines to Govern the Submission, Evaluation, and Approval of Electric Capital Projects Page 2 of 2 This Resolution shall take effect fifteen (15) days following its publication in a newspaper of general circulation in the country. Pasig City, March 8, 2006 RODOLFO B. ALBANO, JR. Chairman (On Officiat Leave) OLIVER B. BUTALID C Commissioner Commissioner (On Official Leave} RAUF A. TAN. EJANDRO Z. Commissioner CommissionerANNEX “A” Republic of the Philippines ENERGY REGULATORY COMMISSION San Miguel Avenue, Pasig City (GUIDELINES TO GOVERN THE SUBMISSION, EVALUATION AND APPROVAL OF ELECTRIC DISTRIBUTION CAPITAL PROJECTS Pursuant to Section 43 of Republic Act No. 9136 otherwise known as the Electric Power Industry Reform Act of 2001 (EPIRA), Rules 6 and 7 of its implementing Rules and Regulations, the Distribution Services and Open Access Rules (DSOAR), and Section 20 (b) of Commonwealth Act No. 146, as amended, the Energy Regulatory Commission (ERC) hereby adopts and promulgates the following Guidelines to Govern the Submission, Evaluation and Approval of Electric Distribution Capital Projects. wa ARTICLE | GENERAL PROVISIONS Objectives Vd 1.1.2 14.5 To provide the Distribution Utilities with a uniform system for filing applications for the approval of Capital Projects; ‘To ensure that capital projects are in compliance with the Philippine Grid Code (PGC) and the Philippine Distribution Code (PDC); To protect the public interest as it is affected by the rates and services of Electric Utilities and other providers of electric power; To ensure the economic, orderly and efficient development of Electric Utilities’ resources that concern public interest; To ensure that the procurement of equipment, materials and services are transparent and compliant with the applicable laws and accepted industry practices and standards. a AS i Zo ( A iA2 L1.3 Guiding Principles Provisions in Chapter 6 of the PGC and Chapter 6 of the PDC directed the Grid Owner and the Distribution Utilities to conduct grid and distribution planning for the preparation and evaluation of distribution system reinforcement projects and for the preparation of the Distribution Development Plans. Distribution Utilities are mandated to prepare and submit their annual 5-year Distribution Development Plans to the DOE. Individual development projects found within the DOP shail be reviewed by the ERC. Any plan for expansion or improvement of distribution facitities shall be reviewed and approved by the ERC to ensure that all Capital Projects are optimized and that the contracting and procurement of the equipment, assets and services have been subjected to transparent and competitive bidding and purchasing processes to protect public interest. Scope of Application 1.3.1 Electric Cooperatives; 1.3.2 Privately-Owned Distribution Utilities; 1.3.3 Local Government Unit Qwned-and-Operated Distribution Systems: 1.3.4 Entities duly authorized to operate within the Economic Zones; 1.3.5 Qualified Third Parties (QTPs) operating in waived areas of a franchised Distribution Utility; 1.3.6 Utilities who are under the Perlormance-based rate setting methodology shall not be subject to this Guidelines Definition of Terms Connection Assets Distribution Connection Assets as defined in the DSOAR. Department of Energy / The government agency created pursuant DOE to Republic Act No, 7638 whose expanded functions are provided in the Act. Distribution The five-year development plan submitted Development Plan by the Distribution Utilities to the DOE not later than the fifteenth (15°) of March of wzDistribution Management Committee (DMC) Distribution System DSOAR Economic Zone (EZ) every year, pursuant to Section 23 of R.A. No. 9136 and Rule 7, Section 4(p) of its IRR. In the case of Electric Cooperatives, such plans shali be submitted through the NEA for review and consolidation, in preparation of the National Electric Cooperatives Distribution Development Plan. The committee established by the ERC to monitor the implementation of the Philippine Distribution Code and to perform other functions mentioned in Section 2.2.1 of the Philippine Distribution Code. The system of wires and associated facilities belonging to a franchised distribution utility, extending between the defivery points on the transmission, sub- transmission system, or generating plant connection and the point of connection to the premises of the end-user. The Distribution Service and Open Access Rules as promuigated by the ERC. The selected areas which are being developed into agro-industrial, industrial, tourist, recreational, commercial, banking, investment and financial centers. An EZ may refer to any of the following: Industrial Estates, Export Processing Zones, Free Trade Zones, information Technology Parks and Tourist / Recreational Centers, such as but not limited to, those managed, administered, or operated by the Bases Conversion Development Authority {BCDA), Cagayan Economic Zone Authority {CEZA), Clark Development Corporation (CDC), Subic Energy Zone (SEZ), Philippine Economie Zone Authority (PEZA), Phividec Industrial Authority (PIA), and Zamboanga City Economic Zone Authority (ZCEZA). ‘\. Ve 4Electric Capital Projects Electric Cooperative Electric Utility Force Majeure Non-electric Capital Projects: Performance Based Regulation (PBR) Philippine Distribution Code (PDC) Philippine Energy Plan (PEP) These are projects needed to serve forecasted future loads and to maintain good electric service to existing and future customers satisfying the utility's technical criteria for capacity, reliability, quality and safety. A Distribution Utility organized pursuant to Presidential Decree No. 269, as amended or as otherwise provided in Republic Act No. 9136. All electric Distribution Utilities as stated in Section 3 of Article 1 of these Guidelines. Any act of God, act of the public enemy, terrorist acts, insurrection, riot, fire, earthquake, labor strike or work stoppage, storm or flood, breakage or accident to machinery or equipment, any order or regulation or restriction imposed by the cour, governmentai, military or lawfully established civilian authority, or any other cause beyond the Electric Utilities’ control. Refers to projects other than Electric Capital Projects that are essential in the conduct and operation of electric service business. The rate setting methodology as approved by the ERC. The set of basic rules, requirements, procedures, and standards to ensure the safe, reliable, secured and efficient operation, maintenance, and development of the Distribution Systems in the Philippines. It also defines and establishes the technical aspects of the working relationship of the Distribution Utilities and all users of the Distribution System. The overall energy program formutated and updated yearly by the DOE and arPhilippine Grid Code (PGC) Power Development Program (PDP) Qualified Third Party (QTP) Splitting of Major Projects submitted to Congress pursuant to Republic Act No. 7638, The set of basic rules, requirements, procedures, and standards that will ensure the safe, reilable, secured and efficient operation, maintenance, and development of the high-voltage backbone transmission system in the Philippines. It identifies and recognizes the responsibilities and obligations of the Grid Owner, System Operator, and the Market Operator. 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. The alternative electric service provider authorized to serve remote and Unviable Areas pursuant to Section 59 of the Act and Rule 14 of its Implementing Rules and Regulations. It shall refer to persons who meet the qualifications set by the DOE and who obtained the necessary permits from the ERC and any other agency as may be required to be an indirect beneficiary of a person of the Universal Charge for Missionary Electrification. The division, separation or partition of one project into several phases, stages or minor projects. hy Sz1S Classification of Capital Projects 1.5.1 15.2 Major Capital Projects These are Electric or Non-electric Capital Projects with costs that are substantial in terms of the nature and scope of work. These exclude connection assets covered by the DSOAR. All Major Capital Projects that qualify under the following conditions shall be filed for approval with the ERC: a) For a Private Distribution Utility, the total project cost of each Major Capital Project included in the DDP for a given year shall be more than or equal to 0.25% of the recorded amount of Total Net Property and Equipment in Service in its iatest audited Balance Sheet. b) For an Electric Cooperative, the total project cost of each Major Capital Projects included in the DDP for a given year shall be more than or equal to 0.25% of the recorded amount of Total Net Property and Equipment in Service in its latest audited Balance Sheet, or PhP500,000.00 whichever is higher. « Major Capital Projects as indicated in the DDP shall be filed for review and approval of the ERC before they are implemented. Splitting of major projects is prohibited except with prior authorization from the ERC. Minor Capital Projects These are Electric or Non-Electric Capital Projects that do not qualify as Major Capital Projects. An Electric Utility shall not be required to file formal application for ERC approval of Minor Capital Projects to be implemented in a given year. An Electric Utility shall report to Ihe ERC in writing one 1 month after the start of the implementation of Minor Capital Projects, by indicating the following: a) Project / Program / Activity Description; b) Justification/s or Benefits to be delivered; ¢) Estimated Project / Program / Activity Costs; d) Project / Program / Activity Schedule 9 f oe OZ WALMinor Capital Projects shall be deemed approved by the ERC upon their implementation. Minor Capital Projects are subject to verification by the ERC for the purpose of determining any significant discrepancies or deviations from the submitted documents. 1.5.3 Emergency Capital Projects These are Electric Capital Projects that require immediate implementation during an event of force majeure in order to maintain safe, reliable, secure and efficient operation of the power system. These projects shall be deemed provisionally approved by the ERC upon their implementation provided that, in case of emergency capital projects which are classified as major projects, an Electric Utility shall file a formal application within sixty (60) days after start of construction. Emergency Capital Projects that do not qualify as Major Capital Projects shail be reported toe the ERC in writing one (1) month after the start of construction, by indicating the following: a) Project / Program / Activity Description; b) Justification/s or Benefits to be delivered; c) Estimated Project / Program / Activity Casts; d) Project / Program / Activity Schedule ARTICLE APPLICATIONS AND REQUIREMENTS Application for Major Electric Capital Projects The application for the approval of any Major Electric Capital Project/s shail be verified by an authorized representative of the Electric Utitity, which has to present Board Resolution or Secretary's Certificate to show proof of his / her being the designated representative of the Board of Directors and shall be filed with the ERC together with properly labeled three (3) hard copies and three (3) electronic copies of the following requirements: 244 Description of the Project; Tah.2.1.2 24.3 2.1.5 21.6 217 218 219 2.4.10 2.4.41 2.4.42 21.13 Justifications for the Project {include the adverse effects of the non-implementation of the proposed Project(s) and impact or benefits of the proposed Project(s) on the system); Options / Alternatives considered in lieu of the proposed Project(s); 5-year Historical and Forecast Planning Data consistent with the DDP; Technical Analysis (Simulation and/or Computation); Projected Financial & Economic Cost Analysis; i. impact / effect on rate base of the proposed Project(s); ii, Net Present Value, [Internal Rate of Return and Benefi/Cost Ratio analysis (include analysis for the alternatives); Conceptual Engineering Design and Drawings; Project Cost Estimates which has to be in reference te a specified design and bill of materials in the latest Manual of Construction Standards submitted to the ERC. Project Financing Plan; Proposed Gantt Chart Schedule (include Bidding and Procurement Schedule); Board resolution or Secretary’s Certificate approving the proposed Project(s); Sworn Statement from the authorized representative of the Electric Utility that an application for approval from the concerned agencies that may have interest in the proposed project has been filed / or shall be filed by (specify date of filing and furnish ERC a copy within 5 days upon filing); Sworn Statement from the authorized representative of the Electric Utility that the proposed major capital project is consistent with the DDP. Projects which are not included in the DDP need justification. « Ao2.2 Application for Major Non-Electric Capital Projects The application for the approval of any Major Non-Electric Capital Projeci/s shall be verified by an authorized representative of the Electric Utility, which has to present Board Resolution or Secretary's Certificate to show proof of his / her being the designated representative of the Board of Directors and shail be filed with the ERC together with properly labeled three (3) hard copies and three (3) electronic copies of the following requirements: 2.24 Description of the Project; 2.2.2 Justification for the Project , 2.2.3 As-built Design and Drawings, it applicable, 2.2.4 Actual Project Cost, 2.2.5 Projected Financing Plan, 2.28 Gantt Chart Schedule, 227 Board Resolution or Secretary's Certificate approving the proposed project/s; and 2.28 Sworn Statement from the authorized representative of the Electric Utility that an application for approval from the concerned agencies that may have interest in the proposed project has been filed or shail be filed, if applicable. 2.3 Evaluation and Approvat Within fifteen (15) days from receipt of an application, the ERC shall verify the completeness of the documents submitted, and notify the results of its findings in writing the Electric Utility concerned. in so doing, the ERC shail undertake either of the following: i Notify the concerned Electric Utility to submit missed out documents using the requirements stipulated in this guidelines as basis, if some requirements were found lacking; or O24 ii. Notify the concerned Etectric Utility to pay the required filing fee as docketing requirement, if all the submitted requirements were found in order. Upon filing of the application, the Commission may, on its own or upon motion, grant the issuance of a Provisional Authority (PA) based on the allegations of the application and on such other documents attached thereto or submitted by the parties. The Commission, if necessary, may schedule a hearing for the issuance of a PA not later than thirty (80) days from the filing of the application. Thereafter, the Commission shall issue a ruling either granting or denying the PA stating clearly the reasons therefore, within seventy five (75) days from the fiting of the application. During the ERC review, the staff may request additional information from the Electric Utility on issues that the ERC believes need more clarification. Any petition, application or action to be filed herein shall be governed by the existing Rules of Practice and Procedure Governing Hearings before the ERC, ihe pertinent provisions of the Act or its IRR and other related laws. Any application for the approval of Major Capital Projects and/or Major Emergency Capital Projects shail be decided by the ERC within ninety (90) days from the time the applicant formally offers its evidence; otherwise, it is deemed that the application shal! have been approved. For the authorization and approval of Major Capital Projects and/or Major Emergency Capital Projects, an Electric Utility shail be required to pay a permit fee based on the existing schedule of ERC Fees and Charges. The ERC may refer to the DMC or engage the services of a consultant at a reasonable cost, in the evaluation of any Major Capital Project/s application submitted to the ERC for approval. The concerned Electric Utility shall be charged an amount equivalent to the expenses incurred by the ERC in engaging the services of the consultant, and said expenses shall be recovered by the concerned Electric Utility as part of the capital expenditure of the project being evaluated. Reportorial Requirements A privately-owned Etectric Utility and an Electric Cooperative shall submit the Plan for Right-of-Way (if applicable) and result/s of the competitive bidding which include proposais and purchase orders of major equipment utilized for the particular project/s (if applicable) after completion of a Major Capita Project, O Ww J jor uf \For other government-owned Electric Utilities, the submission of the result/s of the competitive bidding which include proposals and purchase orders of materials and/or equipment utilized for the particular project/s shall be in accordance with the Implementing Rules and Regulations of R.A, No. 9184, or known as “Government Procurement Reform Act’. An Electric Utility shall be required to submit actual project costs of the Major Capital Project thirty (30) days after its full completion. Any significant or substantial change in the conceptual engineering design, specifications and/or increase/decrease in the bill of materials that will result in a cumulative variation order beyond 10% on top of the allocated contingency due to extraordinary inflation and currency exchange rate of the original project cost shall be reported to ERC in writing within fifteen (15) days before implementing the variation order, The ERC shail render its decision within thirty (30) days from receipt of the report, otherwise, it is deemed that the revision/s shall have been approved. Failure to submit a report within the said period shall constitute @ waiver by the Electric Utility for any claim. The Electric Utility shall submit to the ERC a written report, together with justifications, if it decides to defer or cancel approved Major Capital Projects. . ARTICLE It ADMISTRATIVE SANCTIONS Violations of this Guidelines shall be subject to the penalty which the Commission may impose in accordance with the Guidelines to Govern the Imposition of Administrative Sanctions in the Form of Fines and Penalties pursuant to Section 46 of Republic Act 9136. ARTICLE IV TRANSITORY PROVISIONS Major Capital Projects that are in the implementation process or which were recently completed and have not been covered by any application filed before the ERC, shali be submitted to the ERC for approval within three (3) months from the date of effectivity of these Guidelines. 2AHowever, capital projects, which have already been included in the applicant's rate base, as approved by the ERC, or those that were already filed for inclusion in the rate base and presently being evaluated by the ERC, shall be excluded from the application of these Guidelines. ARTICLE V SEPARABILITY CLAUSE If for any reason, any provision of these Guidelines is declared unconstitutional or invalid by final judgment of a competent court, the other parts or provisions hereof which were not affected thereby shall continue to be in full force and effect. ARTICLE VI REPEALING CLAUSE Any rule or regulation inconsistent with the provisions of these Guidelines is hereby repeaied and modified accordingly. ARTICLE Vii EFFECTIVITY These Guidelines shall take effect fifteen (15) days upon its publication in a newspaper of nationwide circulation. Pasig City, March 8, 2006. RODOLFO B. AL/BANO, JR. (On Official Leave) ee OLIVER B. BUTALID JESUS'N. ALCORDO Commissioner Commissions (On Official Leave) Lid RAUF A. TAN ANDRO Z. BAI Commissioner Commissioner 122